STORIES 

of  the 

GREAT  RAILROADS 


CHARLES  EDWARDRUSSELI 


w 


STORIES   OF  THE  GREAT 
RAILROADS 


BY 
CHARLES  EDWARD  RUSSELL 


CHICAGO 

CHARLES  H.  KERR  &  COMPANY 
1912 


1 


Copyright,   1908,   1909,   1910,  by  HAMPTON'S  MAGAZINE 
Copyright,  1912,  by  CHARLES  H.  KBRR  &  COMPANY 


PRINTED  A  NO  BINDER 
.80 


376-382    MONROE  STREET 
CHICAGO,     ILLINOIS 


PREFATORY  ANECDOTE. 

Most  of  the  matter  in  this  book  originally  appeared  in 
Hampton's  Magazine  in  the  form  of  separate  articles. 

After  the  manuscript  of  Chapter  III  had  been  taken  to 
the  magazine  office,  before  there  had  been  any  publication, 
and  when  the  article,  in  fact,  had  advanced  no  farther  than 
the  proof  stage,  I  received  a  letter  from  a  railroad  agent 
in  a  western  city,  displaying  an  intimate  acquaintance  with 
the  article,  attempting  to  refute  some  of  its  statements,  and 
urging  me  not  to  print  them. 

Again,  while  the  chapter  on  Death  Avenue  was  lying  at 
the  office  in  proofs,  and  two  weeks  before  the  magazine 
that  contained  it  had  been  made  up,  a  gentleman  declaring 
himself  to  be  a  representative  of  the  New  York  Central 
railroad  and  known  in  the  office  to  be  such,  called  with  the 
information  that  he  knew  the  nature  and  scope  of  the 
article  the  magazine  intended  to  publish  about  the  New 
York  Central,  and  he  plainly  intimated  that  unless  it  was 
suppressed  the  railroad  company  would  withdraw  all  its 
advertising  from  Hampton's.  The  article  was  published 
and  railroad  advertising  was  accordingly  withdrawn. 

About  two  weeks  before  the  publication  of  Chapter  XIII, 
and  while  it,  too,  had  advanced  no  farther  than  the  proof 
stage,  there  came  to  the  office  of  the  magazine  a  gentleman 
that  introduced  himself  as  coming  from  Mr.  Charles  S. 
Mellen,  president  of  the  New  York,  New  Haven  and  Hart- 
ford Railroad  company,  which  is  made  the  subject  of  that 
chapter.  He  said  that  Mr.  Mellen  understood  that  an 
article  attacking  the  railroad  company  was  about  to  be  pub- 
lished in  Hampton's ;  that  it  was  as  he  expressed  it,  "full  of 

5 

248588 


O  •••• '".PREFATORY  ANECDOTE 

lies,"  and  he  came  to  warn  the  editor  not  to  publish  any 
such  matter.  In  describing  the  article,  he  showed  such 
familiarity  with  it  as  a  man  could  hardly  have  unless  he 
had  read  it,  although  Mr.  Hampton  had  believed  that  no 
one  outside  of  the  office  (except  myself)  knew  of  the 
existence  of  the  article. 

Proofs  of  the  matter  were  now  produced  and  the  caller 
requested  to  indicate  which  of  the  statements  were  "lies." 
Each  important  sentence  was  read  to  him  separately,  and  he 
was  asked  whether  it  were  true  or  false.  In  every  instance, 
except  four,  he  was  obliged  to  admit  that  it  was  true.  The 
four  instances  to  the  contrary  were  either  trivial  or  they 
were  matters  that  Mr.  Hampton  himself  knew  to  be  accu- 
rately stated. 

He  had  told  his  caller  at  the  beginning  of  the  interview 
that  he  would  change  or  omit  every  statement  in  the  article 
that  could  be  shown  to  be  false.  After  spending  the  bet- 
ter part  of  the  day  in  the  careful  consideration  of  the  mat- 
ter sentence  by  sentence,  there  appeared  to  be  nothing  ma- 
terial to  change. 

Nevertheless  the  visitor  demanded  that  the  article  be 
not  printed.  He  said  that  if  it  should  be,  the  financial  pow- 
ers back  of  the  New  Haven  railroad  would  ruin  the  maga- 
zine and  Mr.  Hampton. 

The  article  was  printed  in  the  issue  of  November,  1910. 
From  that  time  Mr.  Hampton  found  it  increasingly  difficult 
to  get  any  money  at  the  banks.  Even  when  he  offered 
paper  of  the  best  kind,  endorsed  by  four  men  of  wealth  that 
had  no  trouble  about  borrowing  money  on  their  own  account, 
the  banks  refused  him  all  accommodation.  Twenty-one 
banks  and  trust  companies  were  approached  with  the  same 
result.  More  than  one  declared  a  willingness  to  accept  the 
paper  for  any  other  purpose  than  Hampton's  Magazine. 
Several  times  the  paper  was  accepted  and  subsequently,  at 


PREFATORY  ANECDOTE  7 

some  mysterious  signal,  rejected.  The  result  was  that  Mr. 
Hampton  was  ruined  according  to  prediction  and  his  maga- 
zine was  swept  out  of  his  hands. 

It  had  a  circulation  of  more  than  400,000  and  a  very  large 
advertising  business,  and  not  a  bank  in  New  York  would 
advance  to  it  one  dollar. 

Meantime,  spies  had  made  their  way  into  the  business 
office  of  the  magazine,  copied  the  list  of  stockholders,  and 
these  were  besieged  with  circulars  intimating  that  the  con- 
cern was  about  to  fail,  and  they  had  better  protect  them- 
selves, with  the  inevitable  result  of  destroying  the  maga- 
zine's credit  and  bringing  upon  it  a  swarm  of  frightened 
stockholders. 

These  are  the  facts. 

The  author  earnestly  desires  opinions  upon  them  from 
unprejudiced  sources — and  others.  They  seem  to  him  to 
represent  a  condition  incompatible  with  any  assertion  of  a 
free  press  in  America,  and  a  state  of  espionage  by  the  cor- 
porations that  deserves  the  thoughtful  attention  of  every 
citizen. 


CONTENTS 


PAGE 

PREFATORY  ANECDOTE 5 

THE  ROMANTIC  HISTORY  OF  THE  DUTCH  BONDHOLDERS 

AND  THE  ST.  PAUL  AND  PACIFIC 11 

THE  ROMANCE  OF  THE  INLAND  EMPIRE 33 

THE  GREATEST  MELON  PATCH  IN  THE  WORLD 57 

i 

THE  ROMANCE  OF  DEATH  AVENUE 80 

ROMANTIC  DAYS  IN  EARLY  CALIFORNIA 102 

UNCLE  MARK  PACKS  UP  THE.BOOKS 128 

MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON 158 

MRS.  COLTON  LEARNS  ABOUT  PHILANTHROPY 197 

SPEAKING  OF  WIDOWS  AND  ORPHANS. 212 

WHAT  THE  LAW  DOES  FOR  Us 226 

THE  STORY  OF  THE  HARBOR  FIGHT 255 

THE  STORY  OF  THE  LEMON  RATE 281 

THE  STORY  OF  THE  NEW  HAVEN..  ..309 


Stories  of  the  Great  Railroads. 

CHAPTER  I. 

THE  ROMANTIC   HISTORY  OF   THE  DUTCH   BONDHOLDERS   AND 
THE  ST.  PAUL  AND  PACIFIC. 

Sir  George  Stephen,  Knight  Grand  Cross  of  the  Royal  Victorian 
Order,  Baron  Mount  Stephen  in  the  Province  of  British  Columbia, 
Dominion  of  Canada  and  of  Duffstown,  Banff,  in  the  Peerage  of 
the  United  Kingdom ;  so  created  June  23,  1891 ;  and  Baronet,  so 
created  March  3,  1886;  late  President  of  the  Canadian  Pacific  Rail- 
way, Deputy  Lieutenant,  County  Banff,  Motto,  Contra  Audentior. 
Seats,  Grand  Metis,  Quebec,  and  Brocket  Hall,  Hatfield,  Herts. 
Town  House,  17  Carlton  House  Terrace. — Burke's  Peerage,  1909. 

The  Baron  Strathcona  and  Mount  Royal,  Sir  Donald  Alexander 
Smith,  G.C.M.G.,  F.R.S.  (Cross  of  the  Order  of  St.  Michael  and 
St.  George,  Fellow  of  the  Royal  Society)  of  Glencoe,  County  of 
Argyle,  Quebec,  Canada;  late  Resident  Governor  and  Chief  Com- 
missioner at  Montreal  of  the  Hudson  Bay  Company,  President  of 
the  Bank  of  Montreal,  Vice-President  Dominion  Rifle  Association, 
Honorary  Colonel  8th  Vol.  Batt.  Liverpool  Regiment,  some  time 
member  for  Montreal  in  the  Dominion  Parliament,  Chancellor  of 
Aberdeen  University  since  1893,  and  of  the  McGill  University,  Hon. 
LL.D.  of  the  Universities  of  Cambridge,  Yale,  Glasgow,  Aberdeen, 
Toronto,  etc.,  and  Hon.  D.C.L.,  Oxford;  F.R.S.  High  Commissioner 
for  Canada  in  London  since  1896,  member  of  Royal  Commission  on 
War  in  South  Africa,  1902,  etc.  Seats  Glencoe,  Argyleshire;  Silver 
Heights,  Winnipeg ;  Norway  House,  Pictou,  NoVa  Scotia ;  Resi- 
dences, Knebworth  House,  Stevenage,  Herts,  and  Debden  Hall, 
Newport,  Essex.  Town  Residences,  1157  Dorchester  Street,  Mon- 
treal ;  28  Grosvenor  Square,  W. — Burke's  Peerage,  1909. 

As  a  rule,  the  luminous  pages  of  the  estimable  Mr.  Burke 
have  for -us  in  this  country  but  slight  concern  (except  very 
likely  for  those  of  us  that  have  marriageable  daughters 

11 


12  STORIES    OF    THE    GREAT    RAILROADS 

ready  for  the  title  market),  but  about  the  two  peerages 
above  noted,  there  should  dwell  for  Americans  all  the  keen 
interest  that  pertains  always  to  the  work  of  our  own  hands ; 
because  these  two  peerages  we  have  made.  In  that  sense 
they  are  far  more  truly  American  than  British;  and  the 
tourist  from  Minnesota  or  Montana,  straying  through  the 
awful  precincts  of  Carlton  House  Terrace  or  Grosvenor 
Square,  can  look  with  peculiar,  and  in  a  sense  proprietory 
interest  upon  two  of  the  stately  houses  there,  since  we  con- 
ferred them  upon  their  present  inhabitants.  If  he  be  phil- 
osophical, also,  the  spectacle  may  properly  spur  him  to 
much  profitable  thought,  one  subject  powerfully  suggested 
being  a  question  Whether,  after  all,  we  Americans  are  really 
as  smart  as  we  think  we  are. 

Lord  Mount  Stephen  and  Lord  Strathcona  began  as  poor 
boys  and  humble  commoners.  Look  upward  and  observe 
the  dizzy  heights  to  which  they  have  climbed;  the  lofty  dis- 
tinctions, the  great  wealth,  the  many  palaces,  the  station 
where  in  a  long  sonorous  rumble  a  row  of  titles  must  fol- 
low each  utterance  of  their  names,  lords  and  peers  and 
baronets  and  what  not — each  referred  to  in  the  English 
press  as  His  Lordship,  each  loaded  with  honors,  decorated 
by  universities,  including  our  own.  What  an  apparent 
splendor  of  achievement!  What  grandeur!  As  we  ordi- 
narily view  these  matters,  what  a  lesson  to  the  young !  And 
all  done  with  American  dollars ! 

About  this  sort  of  thing  there  clings  in  our  minds  the 
traditional  halo  and  allurement  of  romance.  Beyond  any 
exploit  of  any  soldier  on  any  battlefield,  beyond  all  physical 
daring  or  prowess,  our  hearts  acclaim  the  glorious  record  of 
the  boy  that  begins  desperately  poor  and  wins  fortune,  fame, 
eminence,  power;  and  among  such  histories  the  instances  I 
mention  here  leave  for  romantic  splendor  nothing  further 
to  be  conceived.  Donald  Smith,  for  example,  was  once  a 
poor  and  obscure  drudge  in  the  service  of  the  Hudson  Bay 


ROMANTIC   HISTORY  OF  THE  DUTCH   BONDHOLDERS        13 

Company;  he  spent  thirteen  years  in  the  humblest  labor, 
almost  marooned  among  the  savages  of  Labrador;  he  en- 
dured countless  vicissitudes  and  dangers;  he  made  his  way 
to  affluence;  he  became  a  peer  of  the  realm.  At  his  own 
expense  he  raised,  equipped,  and  maintained  a  body  of  ef- 
ficient troops  that  greatly  helped  to  save  his  country  when 
in  the  crisis  of  her  imminent  peril  at  the  hands  of  25,000 
Boer  farmers.  To  him,  therefore,  the  whole  nation  gives 
praise  and  honor.  Novelist  never  conceived  a  career  more 
inspiring  to  persons  of  our  predilections,  and  not  the  least 
of  its  attractions  is  the  fact  that  we  gave  so  much  to  assist 
it;  even  if  our  contributions  were  involuntary. 

But  have  we  on  our  side  of  the  international  boundary 
no  careers  comparable  with  these,  even  if  of  necessity  they 
be  uncrowned  with  peerage?  Most  assuredly  have  we. 
There  is  Mr.  James  J.  Hill,  distinguished  as  easily  the  great- 
est and  most  admired  of  our  railroad  kings,  who  though 
still  without  a  lordship  (by  name)  is  well  known  to  deserve 
this  and  even  greater  honor.  His  is  the  life  of  achievement 
most  often  and  most  reasonably  held  up  as  the  perfect 
model  for  our  aspiring  youth.  In  solidity  of  performance, 
in  the  making  by  irreproachable  methods  of  a  great  fortune, 
in  application,  industry,  zeal,  ability,  fidelity,  integrity,  in 
short  in  all  the  most  laudable  traits  of  manhood,  here  we 
are  informed  is  the  ideal  type.  He  began  very  poor  and 
with  every  disadvantage,  including  uncompleted  schooling; 
he  appears  now  in  possession  of  a  colossal  fortune,  at  the 
head  of  a  vast  system  of  railroads,  endowed  with  truly  im- 
perial power,  praised  by  the  press  and  by  educators,  cited  by 
the  pulpit  as  the  conspicuous  exponent  of  wealth  honestly 
acquired,  admired  of  all  men  (or  nearly  all),  embalmed  in 
literature  as  the  typical  example  of  the  romance  of  success. 
What  could  be  beyond  all  this  ? 

I  know  not  how  these  things  can  be  better  said  than  in 
the  words  of  one  of  his  most  eloquent  panegyrists,  Mr. 


14  STORIES    OF    THE    GREAT    RAILROADS 

Henry  Lee  Higginson,  of  State  Street,  Boston,  in  the  At- 
lantic Monthly  for  January,  1908.  "He  was,"  says  Mr.  Hig- 
ginson, "  a  poor  boy  who  passed  through  one  stage  of  hon- 
est industry  after  another,  never  fagged  in  his  task,  *  *  * 
using  his  knowledge  and  skill  to  win  success ;  who  has  toiled 
without  salary,  allowing  neither  to  himself  nor  any  of  his 
officials  side  profits  or  interest  in  adjoining  lands,  factories, 
or  mines  contributing  business  to  his  railroad;  who  has 
distributed  throughout  his  country  at  his  own  cost  the  best 
live  stock  and  has  helped  in  divers  ways  everybody  within 
his  domain." 

Good!  Let  us  then  betake  ourselves  to  profitable  study 
of  the  man  to  whom  are  thus  frankly  ascribed  regal  powers 
and  attributes  in  "his  domain,"  and  whose  career  can  hardly 
fail  to  be  a  suitable  companion  piece  to  the  careers  of  his 
friends,  Lord  Mount  Stephen  and  Lord  Strathcona.  With 
the  more  good  will  since  it  happens  that  we  can  observe  all 
these  admirable  exploits  compendiously  and  at  one  glance. 
Because  Lord  Mount  Stephen  and  Lord  Strathcona  made 
their  fortunes  at  the  same  time  that  Mr.  Hill  made  his,  in 
the  same  operations  and  from  the  same  people,  who  are 
ourselves — a  happy  and  rare  conjunction  of  circumstances 
for  which  we  can  hardly  be  too  thankful. 

Mr.  Hill  was  born  in  a  log  house  on  a  little  farm  near 
Rockwood,  Ontario,  September  16,  1838.  Fourteen  years 
later  his  father  died,  and  young  Hill  left  school  to  go  to 
work  in  the  village  store,  the  family  being  in  extreme  pov- 
erty. At  eighteen,  he  joined  the  western  flowing  tide  of 
emigration,  and  was  carried  by  it  as  far  as  St.  Paul,  where 
he  secured  the  place  of  shipping  clerk  with  the  agents  of  a 
Mississippi  River  steamboat  line.  He  was  both  industrious 
and  thrifty ;  it  was  noted  then  that  for  some  reasons  of  per- 
sonal economy  he  used  to  get  his  dinners  aboard  the  incom- 
ing steamers,  where  they  were  free.  In  1867  he  became  the 
local  freight  agent  of  the  St.  Paul  &  Pacific  Railroad,  and 


ROMANTIC   HISTORY  OF  THE   DUTCH    BONDHOLDERS        15 

held  that  place  until  1873.  For  a  short  time  he  was  engaged 
in  steamboating  on  the  Red  River  of  the  North,  and  next 
he  had  much  experience  in  the  forwarding  and  commission 
business;  with  a  side  line  in  fuel.  At  the  time  this  roman- 
tic story  really  begins,  he  was  nearing  forty,  a  stocky, 
spade-bearded  man,  active,  a  keen  trader,  fairly  well  known 
in  St.  Paul,  and  not,  as  a  rule,  taken  very  seriously.  He 
was  just  Jim  Hill,  shrewd  bargainer,  a  good  judge  of  butter 
and  a  commission  man. 

Our  enthusiasm  concerning  the  romantic  phases  of 
American  railroad  history  should  not  lead  us  to  overlook 
the  extraordinary  liberality  wherewith  our  government  once 
bestowed  the  public  domain  upon  any  gentlemen  that  hap- 
pened to  be  in  the  railroad  line  of  enterprise.  Therefore, 
we  shall  do  well  to  introduce  the  first  chapter  in  this  great- 
est of  all  railroad  romances,  by  reciting  that  in  1857  what 
is  now  the  State  of  Minnesota  was  a  territory,  and  that  on 
March  3rd  of  that  year,  the  Congress  of  the  United  States 
granted  to  the  territory  of  Minnesota  a  vast  area  of  public 
lands  to  be  used  to  encourage  the  building  of  railroads. 
Nineteen  days  later,  which  at  that  time  was  about  as  quickly 
as  the  good  news  could  be  hurried  to  St.  Paul,  the  territorial 
legislature  chartered  the  Minnesota  &  Pacific  Railroad  com- 
pany, which  patriotic  gentlemen  had  formed  in  expectation 
of  congressional  generosity,  and  to  them,  therefore,  was 
conveyed  much  of  the  land  bestowed  by  Congress — subse- 
quently enhanced  by  further  largess  of  the  same  kind. 

What  this  was,  I  hesitate  somewhat  to  say.  because  I 
doubt  if  in  these  days  I  shall  be  believed.  I  can  only  assure 
you  that  I  have  examined  the  records  in  the  Federal  Court 
at  St.  Paul,  and  what  with  diffidence  I  transcribe  here,  is 
taken  from  official  documents.  From  these  it  appears  that 
in  its  final  state,  the  gift  of  public  property  upon  the  patri- 
otic gentlemen  in  the  railroad  way  was,  free  of  all  charge, 
all  the  odd-numbered  sections  of  land  for  a  distance  of  ten 


16  STORIES    OF    THE    GREAT    RAILROADS 

miles  on  each  side  of  the  line  of  the  railroad.  A  section, 
let  me  remark  in  your  ear,  consists  of  six  hundred  and  forty 
acres,  and  the  land  was  the  richest,  the  most  fertile,  the 
most  desirable  in  the  northwest. 

Few  facts  seem  more  romantic  than  this. 

In  other  ways  the  Minnesota  &  Pacific  might  have  suc- 
ceeded admirably;  as  a  railroad  its  achievements  were  not 
notable,  being  confined  to  a  track  from  St.  Paul  to  St. 
Anthony  Falls  (now  Minneapolis),  ten  miles  long — which 
for  an  enterprise  with  a  name  so  ambitious  and  a  land  grant 
so  prodigal,  hardly  seems  all  that  might  have  been  expected. 

In  1862,  there  was  a  reorganization  and  all  the  rights  and 
properties  of  the  Minnesota  &  Pacific  passed  to  a  new  com- 
pany called  the  St.  Paul  &  Pacific,  which  proceeded  to  do 
many  things,  including  the  building  of  some  real  and  much 
imitation  track,  and  the  issuing  of  many  bonds,  all  of  which 
were  sold  to  the  lowly  and  ignorant  European,  and  chiefly 
to  him  of  Holland. 

But  observe  that  by  an  act  of  the  Minnesota  Legislature 
in  1864,  the  St.  Paul  &  Pacific  was,  in  the  most  singular 
way,  divided,  so  that  thereafter  it  seemed  to  be  possessed  by 
two  companies,  one  called  the  St.  Paul  &  Pacific  Railroad 
company,  and  the  other  bearing  the  remarkable  title  of  The 
First  Division  of  the  St.  Paul  &  Pacific  Railroad  company. 
Inasmuch  as  the  officers  of  the  companies  remained  the  same 
and  the  trackage  to  be  divided  (real  and  imitation)  was 
a  trifle,  this  performance  seems  very  mysterious  until  you 
learn  that  one  of  these  companies  operated  as  a  construction 
company  for  the  other.  Then  if  you  know  anything  about 
the  true  romance  of  the  American  railroad,  you  begin  to 
understand  the  mystery,  an  enlightenment  much  facilitated 
by  carefully  considering  the  alleged  cost  of  construction  (to 
be  given  later  in  these  pages)  and  incidentally  remembering 
that  the  money  for  the  construction  came  from  the  lowly 
and  ignorant  European. 


ROMANTIC   HISTORY   OF  THE   DUTCH    BONDHOLDERS        17 

There  were  five  successive  issues  of  bonds,  and  on  the 
proceeds  of  these,  when  sold  as  above  noted,  the  building  of 
the  road  was,  in  the  classic  phrase,  pushed  (more  or  less) 
from  St.  Paul  toward  the  North  and  Northwest.  Until 
1872,  that  is.  Then  the  lowly  Hollander  ceased  to  produce 
funds  and  consequently  the  building  stopped.  Also  the  pay- 
ment of  interest.  Inasmuch  as  the  last  bond  issue  of  $15,- 
000,000  had  been  made  so  late  as  April,  1871,  and  the  pro- 
ceeds could  hardly  have  been  in  that  time  expended  upon 
construction  at  least,  these  romantic  facts  occasioned  some 
astonishment  and  unpleasant  comment. 

Of  these  $15,000,000  of  latest  style  bonds,  $10,700,000 
had  been  sold  in  Holland  through  the  banking  house  of 
Lipmann,  Rosenthal  &  Co.,  Amsterdam,  and  $4,300,000 
were  held  by  the  same  firm  as  security  for  advances  made. 
Nobody  knows  what  had  become  of  these  advances. 

The  firm  of  John  S.  Kennedy  '&  Co.,  New  York,  was 
trustee  for  some  of  the  bonds.  In  consequence  of  the  de- 
fault on  them,  it  brought  suit  and  on  August  1,  1873,  Judge 
John  F.  Dillon  of  the  United  States  Circuit  Court  appointed 
Jesse  P.  Farley,  of  Dubuque,  Iowa,  to  be  receiver  for  the 
St.  Paul  &  Pacific  company. 

Mr.  Farley  was  of  long  and  varied  railroad  experience. 
At  the  time  of  his  appointment,  he  was  superintendent  of 
the  Iowa  Division  of  the  Illinois  Central.  He  went  to  St. 
Paul  and  proceeded  to  receive — also  to  operate  the  property 
as  a  railroad,  the  which  I  judge  to  have  been  an  innovation 
in  its  history.  Hitherto  its  function  had  been  chiefly  to  get 
money  from  the  Hollanders.  Mr.  Farley  seems  to  have 
come  upon  some  of  the  most  romantic  junk  that  even  the 
picturesque  annals  of  the  American  railroad  have  revealed. 
When  he  arrived  in  St.  Paul,  he  notified  his  predecessor  in 
the  control  of  things  to  turn  over  to  him  the  property  of  the 
road.  "If  you  can  find  any  property  belonging  to  the  St. 
Paul  &  Pacific,"  his  predecessor  replied,  "you  had  better 


18  STORIES    OF    THE    GREAT    RAILROADS 

seize  it."  But  even  at  that  it  would  hardly  have  seemed 
worth  seizing,  except  possibly  for  museum  purposes.  In 
some  places  the  tracks  looked  like  a  Virginia  rail  fence  and 
nothing  but  a  squirrel  could  run  over  them;  elsewhere  the 
receiver  had  no  locomotives  nor  cars  and  must  rent  all  his 
equipment  from  the  Northern  Pacific. 

Yet,  being  of  undoubted  capacity  and  dogged  resolution, 
he  worked  his  way  through  all  these  troubles.  He  patched 
up  the  road  bed  and  put  all  of  it  in  good  working  order; 
he  secured  equipment  and  material;  he  supplied  a  service, 
developed  the  traffic,  increased  the  revenue  and  diminished 
the  outgo;  he  enhanced  the  through  business  to  Manitoba 
by  the  way  of  the  Red  River,  in  which  he  made  his  road  an 
important  link.  Settlers  began  to  arrive  in  large  numbers, 
the  country  was  filling  up,  the  railroad  traffic  kept  pace  with 
and  shared  in  the  resulting  prosperity;  the  poor  old  St. 
Paul  &  Pacific  began  to  get  upon  its  legs. 

When  Farley  came  into  the  road  the  First  Division  com- 
pany (of  which  he  was  General  Manager,  but  not  Receiver) 
had  the  line  from  St.  Paul  to  Breckenridge,  and  the  branch 
to  Sauk  Rapids ;  the  other  company  had  the  extension  from 
Watab  to  Brainerd  and  the  line  from  St.  Cloud  to  St.  Vin- 
cent, in  all  something  more  than  four  hundred  miles  of 
track.  Farley  not  only  put  these  in  order,  but  he  completed 
connections  with  the  Canadian  railroad  at  the  frontier.  He 
still  further  proved  his  capacity  when  after  three  or  four 
years  of  his  receivership,  the  Minnesota  legislature  (in  a 
moment  of  unprecedented  righteousness)  passed  an  act  pro- 
viding that  unless  the  road  should  be  completed  to  a  certain 
point  within  a  certain  time,  it  must  forfeit  part  of  the  rich 
land  grant  whereof  the  people's  representatives  had  been  so 
liberal.  Judge  Dillon  authorized  the  receiver  to  construct 
this  extension  and  to  issue  receiver's  debentures  for  the  ex- 
pense. So  the  receiver  built  one  hundred  and  twelve  miles 
of  new  road  and  saved  the  land  grant. 


ROMANTIC   HISTORY  OF  THE  DUTCH   BONDHOLDERS       19 

Four  facts  connected  with  this  operation  are  important 
to  you : 

First,  Judge  Dillon  limited  the  cost  of  construction  to 
$10,000  a  mile,  and  this  sum  must  include  station  buildings, 
grounds,  side  tracks  and  equipment. 

Second,  The  Receiver  built  and  equipped  the  one  hundred 
and  twelve  miles  for  less  than  the  limit  fixed,  expending  only 
about  $9,500  a  mile,  some  stretches  being  done  for  $8,225  a 
mile.  Kindly  remember  this.  You  will  have  reason  to  re- 
fer to  it  later  in  these  chapters,  and  it  is  a  good  fact  to  have 
handy  when  you  encounter  the  assertion  of  gentlemen  in  the 
railroad  way  that  it  costs  $60,000  to  $75,000  a  mile  to  build 
a  railroad. 

Third,  The  Receiver  filed  with  the  court  detailed  ac- 
counts of  every  item  of  expense  connected  with  this  work, 
and  every  citizen  can  go  now  and  see  in  the  office  of  the 
clerk  of  the  United  States  Circuit  Court  at  St.  Paul,  Minne- 
sota, exactly  what  it  costs  to  build  and  equip  a  railroad 
when  the  work  is  honestly  done. 

Fourth,  The  construction  company  with  the  alias,  as  be- 
fore noted,  expending  the  money  of  the  lowly  and  ignorant 
foreigner,  had  charged  up  $30,000  a  mile  for  construction  in 
the  same  region  and  had  done  the  work  so  badly  that  when 
the  Receiver  took  charge,  the  track  was  unsafe. 

Do  you  begin  now  to  see  something  of  the  real  romance 
of  these  things? 

Mr.  Hill,  as  we  have  before  observed,  had  been  for  six 
years  the  local  freight  agent  of  the  St.  Paul  &  Pacific.  His 
experience  in  the  commission  business  had  made  him 
familiar  with  the  farm  products  and  agricultural  possibili- 
ties of  the  Northwest.  He  himself  had  been  born  on  a 
farm,  and  a  tough  one.  Having  been  agent  for  the  rail- 
road, he  knew  also  about  the  rich  land  grants  on  each  side 
of  the  railroad  line.  It  has  been  supposed  that  because  of 
these  items  of  knowledge  and  by  reason  of  marvelous  gifts 


20  STORIES    OF    THE    GREAT    RAILROADS 

of  ability,  he  foresaw  the  vast  agricultural  wealth  of  the 
Northwest  and  determined  now  to  take  advantage  of  it. 
All  of  these  matters  came  subsequently  under  judicial  in- 
quiry, when  there  appeared  no  reason  to  believe  that  Mr. 
Hill  foresaw  anything  beyond  what  he  himself  described  as 
a  good  speculation.  But,  however  that  may  be,  his  were 
the  next  moves  that  completely  changed  the  history  of  the 
railroad  and  laid  the  foundation  for  these  admired  peerages 
and  Mr.  Hill's  own  regal  state. 

Mr.  Hill  is  a  Canadian.  Among  the  interesting  traits  of 
the  truly  admirable  people  of  Canada,  is  their  touching 
sense  of  loyalty.  No  Canadian  ever  forgets  the  tie  that 
binds  him  to  every  other  Canadian,  and  not  even  Scotland 
has  produced  a  stronger  feeling  of  the  clan.  I  do  not  know 
why  this  is  so;  I  think  nobody  knows;  but  the  fact  itself 
must  be  familiar  to  all  observers.  As  soon  as  it  occurred 
to  Mr.  Hill  that  he  had  what  he  called  a  good  speculation, 
his  first  impulse  was  to  bring  into  the  good  thing  another 
Canadian.  There  was  one  then  living  in  St.  Paul  that  was 
a,  conspicuous  figure  of  his  times,  Norman  Wolford  Kitt- 
son,  native  of  Sorel  in  the  Province  of  Quebec.  Hr.  Hill 
broached  his  speculation  to  his  compatriot  Kittson. 

His  second  impulse  seems  to  have  been  to  confer  much 
with  the  Receiver.  Mr.  Farley  subsequently  testified  that 
one  day  in  the  summer  of  1876,  Mr.  Hill  came  into  his  office 
and,  after  many  prolegomena,  outlined  a  scheme  by  which 
bonds  of  the  railroad  could  be  obtained  at  cheap  prices, 
foreclosure  forced,  the  company  reorganized,  and  much 
profits  secured.  Mr.  Farley  conceded  that  the  scheme  was 
fair  to  look  upon  if  anyone  could  get  the  money  where- 
withal the  bonds  were  to  be  bought.  Mr.  Hill  said  he  be- 
lieved he  knew  where  the  money  could  be  had. 

As  to  what  followed,  the  record  shows  divergent  testi- 
mony. 

The  one  fact'  that  is  clear,  is  that  Mr.  Hill  and  Mr.  Kitt- 


ROMANTIC   HISTORY  OF  THE  DUTCH   BONDHOLDERS       21 

son,  Canadians,  drew  into  the  combination  Mr.  Kittson's 
friends,  George  Stephen  of  Montreal,  and  Donald  Alexan- 
der Smith  of  Winnipeg,  also  Canadians,  and  that  these 
gentlemen  executed  a  document  afterwards  known  as  the 
"Montreal  agreement,"  by  which  Mr.  Hill's  suggestion  was 
indorsed  and  amplified  and  the  spoils  of  the  Yankees  de- 
cently apportioned.  Some  money  seemed  to  be  required. 
None  of  the  signatories  had  money,  but  Mr.  Stephen,  who 
was  manager  of  the  Bank  of  Montreal,  and  Mr.  Smith,  who 
had  been  an  active  and  romantic  adventurer  in  the  North- 
west, had  financial  connections  from  which  they  believed 
they  could  secure  what  was  needful. 

In  the  benevolent  partnership  thus  formed  Mr.  Farley 
believed  he  had  a  full  and  equal  share.  The  profits  had 
been  divided  in  advance  into  five  equal  parts,  and  one  of 
these  shares,  he  said,  was  assigned  to  him.  He  had  been 
taken  into  the  deal,  he  said,  in  return  for  his  services,  and 
he  had  continually  guided  the  combination  with  advice 
founded  upon  his  superior  knowledge  as  Receiver  and  Man- 
ager of  the  property.  Thus,  for  example,  Mr.  Hill  wished 
to  send  quietly  to  Holland  and  buy  the  bonds  from  the  lowly 
foreigners.  Mr.  Farley,  as  Receiver,  knew  the  location  of 
practically  every  bond,  and  negatived  Mr.  Hill's  idea  as  un- 
wise and  unnecessary.  He  said  the  bonds  could  be  obtained 
without  sending  to  Holland. 

In  a  short  time  there  appeared  in  St.  Paul  a  man  sent  by 
the  unfortunate  bondholders  to  see  what  had  become  of 
their  money.  Mr.  Farley  introduced  this  man  to  Mr.  Hill 
and  Mr.  Kittson.  They  carried  on  some  negotiations  with 
him,  as  a  result  of  which  they  entered  into  an  agreement 
to  purchase  bonds  on  these  terms : 

For  the  $1,200,000  Branch  Line  issue  of  June  2,  1862, 
seventy-five  per  cent  of  par  value. 

For  the  $3,000,000  Main  Line  issue  of  March  1,  1864, 
thirty  per  cent,  of  par  value. 


22  STORIES    OF    THE    GREAT    RAILROADS 

For  the  $2,800,000  Branch  Line  issue  of  October  1,  1865, 
twenty-eight  per  cent,  of  par  value. 

For  the  $6,000,000  Main  Line  issue  of  July  1,  1868, 
thirty-five  per  cent,  of  par  value. 

For  the  $15,000,000  Extension  issue  of  April  1,  1871, 
thirteen  and  three-fourths  per  cent,  of  par  value. 

All  unpaid  coupons  to  be  included  in  the  sales. 

These  bonds  were  first  mortgages  on  more  than  five  hun- 
dred miles  of  operated  railroad,  and  two  million  five  hun- 
dred and  eighty  thousand  six  hundred  and  six  acres  of  the 
best  land  in  the  world.  The  romance  involved  in  these 
facts  would  almost  bring  tears  to  your  eyes. 

Having  secured  such  of  these  bonds  as  were  necessary  to 
the  genial  plans  of  the  five  partners,  and  chiefly  on  the  un- 
derstanding that  the  purchases  should  not  be  paid  for  until 
the  road  should  be  reorganized,  the  Canadian  brotherhood 
proceeded,  on  May  23,  1879,  to  form  the  St.  Paul,  Minne- 
apolis &  Manitoba  Railroad  company,  of  which  George 
Stephen  was  president,  Norman  W.  Kittson  and  Donald  A. 
Smith,  Directors,  and  James  J.  Hill,  General  Manager. 
Whereupon  there  was  appointed  a  Master  in  Chancery,  who, 
on  the  14th  day  of  June,  1879,  sold  all  the  property  of  the 
two  St.  Paul  &  Pacifies  to  the  St.  Paul,  Minneapolis  & 
Manitoba  Railway  company  for  $3,600,000 — which  hap- 
pened to  be  less  than  the  total  of  the  bonds  secured  at  the 
agreeable  rates  quoted  above.  Some  outlying  piece  of  junk 
purchased  at  the  same  time,  brought  the  exact  cost  to  $4,- 
380,000.  In  making  payments,  the  purchasers  were  al- 
lowed to  turn  in  receiver's  debentures  and  also  the  bonds, 
for  all  the  purchase  price,  except  a  small  percentage  in 
cash.1 


4It  is  unfortunate  that  the  court  records  at  St.  Paul  are  in  a  con- 
dition so  incomplete  and  unsatisfactory  that  no  one  now  can  trace 
with  entire  accuracy  the  successive  steps  in  these  proceedings.  There 
is  no  question,  however,  that  foreclosure  was  accomplished  and  the 
road  sold  to  the  new  company  as  outlined  here, 


ROMANTIC   HISTORY  OF  THE  DUTCH   BONDHOLDERS       23 

This  cash  is  an  exhibit  of  historic  interest  being  all  the 
money  the  partners  ever  invested  in  the  enterprise  and  that 
not  of  their  furnishing. 

Then  were  the  happy  days  before  those  vile  creatures, 
the  muck-rakers,  had  begun  to  cast  their  baleful  shadows 
upon  our  fair  land,  but  even  at  that  halcyon  time  the  ro- 
mantic nature  of  these  transactions  seems  to  have  occa- 
sioned unpleasant  remarks,  and  some  of  the  holders  of 
bonds  outside  of  the  circle  affected  by  the  Canadian  broth- 
erhood, brought  suit  to  have  the  sale  set  aside  and  the  liti- 
gation reopened.  Here  were  five  hundred  and  sixty-five 
miles  of  operated  railroad  and  two  million  five  hundred 
and  eighty  thousand  six  hundred  and  six  acres  of  the  best 
land  out  of  doors,  all  sold  for  $4,380,000 — mostly  in  prom- 
ises to  pay — one  of  the  most  romantic  events  in  railroad 
history,  and  too  romantic  for  those  that  did  not  share  in  it. 

Two  developments  of  later  years  tended  to  enhance  even 
this  delicious  romance.  The  first  was  the  sale  by  the  St. 
Paul,  Minneapolis  &  Manitoba  Railway  company  of  the 
greater  part  of  the  land  for  $13,068,887,  and  the  other  was 
the  sworn  testimony  of  the  Receiver  that  the  railroad  prop- 
erty sold  for  $4,380,000  was  worth  at  the  time  more  than 
$15,000,000.2  He  ought  to  have  known;  he  helped  to 
sell  it. 

However,  the  railroad  and  the  rich  lands  passed  into  the 
hands  of  the  partners,  and  at  once  the  new  owners  issued 
upon  the  property  $8,000,000  of  new  bonds  with  which  they 
paid  for  the  old  bonds  they  had  secured,  returned  to  their 
friends  in  Canada  what  sums  had  been  advanced  for  neces- 
sary expenses,  and  in  this  highly  agreeable  manner  began 
their  operations  on  American  soil ;  having  secured  from  the 
simple-minded  Americans,  five  hundred  and  sixty-five  miles 
of  railroad,  two  million  five  hundred  and  eighty  thousand 


'Farley  v.  Hill  et  al.,  Supreme  Court  of  the  United  States,  about 
which  see  succeeding  pages. 


24  STORIES    OF    THE    GREAT    RAILROADS 

six  hundred  and  six  acres  of  fertile  land,  and  $3,620,000  of 
surplus  bonds  (worth  104),  representing  additional  profits. 
All  without  investing  a  cent — a  romantic  triumph,  as  you 
will  readily  perceive,  of  a  truly  touching  nature. 

There  was  also  issued  by  the  brotherhood  $15,000,000  of 
St.  Paul,  Minneapolis  &  Manitoba  stock,  for  which  not  one 
cent  was  ever  paid  into  the  company's  treasury,  being  in 
fact,  the  purest  water  that  ever  gushed  and  gurgled  from 
the  financial  rocks.  Of  this  stock,  Mr.  Hill,  Mr.  Kittson, 
and  Mr.  Smith  took  twenty-eight  thousand  eight  hundred 
and  twenty-three  shares  each,  being  about  one-fifth.  Mr. 
Stephen  took  two-fifths,  one  of  which  he  held  in  trust  for 
some  person  or  persons  not  stated — a  curious  fact  to  which 
we  shall  have  occasion  to  refer  later. 

You  will  observe  now  that  this  is  one  of  those  romances 
that  deepen  in  interest  as  they  progress,  for  the  $15,000,000 
of  stock  thus  neatly  created  out  of  nothing  by  the  mere  wav- 
ing of  the  wand  of  financial  wizardry  presently  became  an 
enormously  valuable  possession,  and  is  therefore  to  be  added 
to  the  spoils  secured  from  the  outwitted  Yankees. 

On  this  pellucid  water  stock,  the  first  dividend  from  the 
Yankees  was  declared  August  1,  1882.  It  was  at  the  rate 
of  seven  per  cent  a  year,  and  the  stock  was  then  worth 
140:  which  was  doing  fairly  well,  everything  considered. 
Through  the  issue  of  more  bonds,  the  mileage  of  the  road 
had  been  increased  to  1,058,  the  fat  lands  were  being  sold 
for  fat  prices,  and,  of  course,  every  time  a  farm  was  carved 
out  of  them  some  tons  were  added  to  the  freight  traffic. 
The  Canadians  were  perfectly  right;  they  had  a  Good 
Thing ;  one  of  the  best  Good  Things  in  this  world. 

Still,  this  life  here  below  affords  few  instances  of  per- 
fectly unalloyed  joy.  The  loyal  Canadian  brethren  were 
reaping  seven  per  cent  dividends  on  stock  that  cost  abso- 
lutely nothing  beyond  the  expense  of  printing  it,  and  other 
emoluments  were  theirs  or  loomed  large  ahead;  but  in  the 


ROMANTIC    HISTORY   OF   THE   DUTCH    BONDHOLDERS        25 

precious  ointment  of  content  was  still  the  noxious  fly. 
There  was  the  Receiver.  Great  Scott — yes!  We  almost 
forgot  the  Receiver.  What  became  of  him  ? 

Well,  Mr.  Farley,  the  Receiver,  did  not  a  thing  but  clamor 
day  and  night  for  what  he  said  was  his  just  share  in  these 
goodly  profits.  He  said  that  from  the  beginning  he  had 
been  a  full  partner  in  the  enterprise;  one  American  in  the 
same  boat  with  four  Canadians ;  that  he  had  helped  to  plan, 
devise,  and  consummate  the  operations ;  that  his  advice,  co- 
operation and  knowledge  as  Receiver,  had  been  indispens- 
able; that  his  full  and  equal  partnership  had  been  recog- 
nized by  the  others,  although,  because  of  his  position,  it  had 
been  kept  a  secret;  that  he  had  been  promised  a  one-fifth 
share  of  all  the  profits,  the  same  as  the  others  received ;  but 
that  when  the  road  had  been  sold  and  the  new  owners  had 
taken  possession,  the  Canadians  had  coldly  refused  to  recog- 
nize his  claims;  had  repudiated  the  contract  that  he  alleged 
existed  among  them;  and  had  thrown  him  out  of  the  boat. 

How  in  the  world  a  Receiver,  who  is  a  court  officer  and 
certainly  has  sacred  relations  to  the  court  and  to  his  trust, 
could  properly  enter  upon  any  such  arrangement  as  Mr. 
Farley  asserted,  or  how  he  could  perform  any  proper  serv- 
ice to  such  a  combination,  I  do  not  pretend  to  say ;  but  these 
were  his  allegations,  and  after  a  time  he  brought  suit  against 
Mr.  Hill,  Mr.  Kittson,  and  the  St.  Paul,  Minneapolis  & 
Manitoba  company  to  secure  an  accounting  of  profits  and  to 
enforce  his  contract. 

This  strange  suit,  which  you  will  find  fully  reported  as 
No.  287  in  the  October  term  of  the  Supreme  Court  of  the 
United  States,  1893,  dragged  on  for  thirteen  years,  being 
twice  fought  from  St.  Paul  to  Washington  and  back.  You 
might  think  it  of  a  nature  to  cause  a  national  scandal,  in 
view  of  the  position  of  the  Receiver  and  the  significance  of 
his  allegations.  If  he  told  the  truth,  he  had  made  with  the 
Canadian  brotherhood  a  bargain  of  a  kind  wholly  incom- 


26          STORIES  OF  THE  GREAT  RAILROADS 

patible  with  our  cherished  conceptions  of  our  courts,  and 
one  that  should  have  had  the  prompt  attention  of  a  district 
attorney. 

Also,  if  his  allegations  were  true,  the  romantic  gentlemen 
from  Canada  were  put  in  a  light  still  worse  and  highly  in- 
consistent with  the  true  spirit  of  any  other  romance  than  that 
of  the  card-sharp.  For  even  the  most  desperate  devotee  of 
railroad  romanticism  will  hardly  go  so  far  as  to  admire  a 
greasy,  sinister  and  utterly  illegal  bargain  with  an  officer  of 
a  court  and  a  bargain  that  was  not  kept.  This,  of  course, 
is  the  conclusion  suggested  by  Mr.  Farley's  allegations. 
Perhaps  those  allegations  were  unfounded.  Thirteen  years 
of  litigation  failed  to  produce  any  definite  judicial  decision 
on  this  point,  but  it  brought  forth  other  things  of  almost 
equal  value  to  those  that  believe  in  great  fortunes  "honestly 
acquired." 

When  the  case  was  tried  in  the  lower  court,  Mr.  Farley 
took  the  stand  and  told  an  extraordinary  and  detailed  nar- 
rative of  the  many  conferences  at  which  (he  said)  the  plan 
to  secure  the  road  had  been  discussed,  including  his  own 
share  therein.  He  said  that  he  was,  in  fact,  absolutely 
necessary  to  the  enterprise,  because  as  Receiver  he  "had 
knowledge  not  possessed  by  the  others  as  to  the  whereabouts 
and  situation  of  the  bonds,  their  rated  value  by  the  holders, 
the  mode  whereby  they  could  be  reached  and  procured,  the 
situation,  amount,  character,  and  value  of  the  lines  of  rail- 
road and  other  property,  and  in  respect  to  the  pending  fore- 
closure suits."  He  quoted  Kittson  as  insisting  upon  Far- 
ley's participation  and  refusing  otherwise  to  join  the  broth- 
erhood. 

"I  know  nothing  about  a  railroad  and  don't  care  to 
know,'*  Kittson  was  alleged  to  have  said.  "Jim  Hill  knows 
nothing  about  the  management  of  a  railroad,  and  it  would 
be  folly  for  men  to  go  into  an  enterprise  of  this  kind  even 
if  they  were  successful,  without  some  person  with  them 


ROMANTIC   HISTORY  OF  THE  DUTCH    BONDHOLDERS       27 

with  railroad  ability  and  experience  to  manage  the  prop- 
erty." 

On  this,  according  to  Farley's  testimony,  he  agreed  to 
join  the  enterprise  if  Kittson  could  get  the  money  re- 
quired. Kittson,  Farley  testified,  undertook  to  get  the 
money  from  his  Canadian  connections,  and  an  agreement 
was  made  that  Farley  should  have  share  and  share  alike 
with  the  others.  On  June  3,  1876,  Farley  wrote  to  John  S. 
Barnes  of  New  York,  a  member  of  the  firm  of  John  S. 
Kennedy  &  Co.,  with  which  he  regularly  corresponded,  that 
"he  (Kittson)  can  get  the  money,"  and  on  August  23rd, 
same  year,  he  wrote : 

"His  friend,  who  is  expected  to  furnish  the  money,  has 
unlimited  control  of  Canadian  politics.  It  might  become  a 
Canada  project,  but  that  would  be  a  matter  of  no  moment 
to  you  or  me  if  we  could  make  some  money." 

Here  are  bits  of  alleged  conversation  at  the  conferences 
taken  from  the  testimony  in  the  case: 

Kittson — I  won't  have  anything  to  do  with  it,  unless  you 
[Farley]  are  interested.  We  don't  know  anything  about 
railroads. 

Farley — I  have  no  money,  Mr.  Kittson. 

Kittson — We  don't  want  you  to  furnish  any  money. 

Hill — Certainly  not. 

Kittson — We  will  furnish  the  money. 

On  another  occasion. 

Farley — If  you  cannot  get  the  Litchfield  stock  [in  the  old 
company],  why,  you  will  have  to  step  into  the  Dutch  shoes, 
take  the  place  of  the  Dutch  bondholders,  and  go  ahead  and 
foreclose — organize  a  new  company,  put  on  all  the  securi- 
ties the  property  will  bear,  use  enough  of  the  securities  to 
pay  back  what  the  bonds  cost,  and  the  balance  is  profit  on 
the  thing. 

Which,  as  we  have  seen,  is  exactly  what  was  done. 


28  STORIES    OF    THE    GREAT    RAILROADS 

On  another  occasion,  according  to  the  testimony,  Farley's 
position  as  Receiver  was  discussed. 

Kittson — We  will  have  to  keep  this  thing  to  ourselves. 

Hill — Certainly;  it  won't  do  to  let  anybody  know  any- 
thing about  it. 

Farley  [to  Fisher,  his  assistant,  who  participated  in  many 
of  the  conferences] — Now,  Mr.  Fisher,  we  will  have  to 
keep  this  thing  perfectly  quiet. 

It  seems  that  at  first  Mr.  Stephen  went  to  England  and 
tried  to  raise  money  there,  but  failed.  It  must  have  been 
later,  then,  that  the  scheme  of  conditional  purchase  of  the 
bonds  was  hit  upon  and  proved  eminently  successful. 

One  of  Farley's  letters  taken  from  the  record  of  the  case, 
may  serve  to  lighten  these  matters  with  a  passing  ray  of 
grim  humor.  It  was  written  after  the  sale  of  the  property 
and  read  thus : 

"Since  the  election  of  Bigelow  and  Galusha  as  Directors 
in  the  New  Company,  men  of  no  Money,  railroad  experi- 
ence or  Influence,  And  myself  left  out  in  the  cold,  I  am 
forced  to  the  conclusion  that  My  time  and  claims  on  the  St. 
Paul  &  Pacific  is  Short.  I  did  expect  better  things  of  Hill 
and  Kittson.  I  had  a  talk  with  Jim  Hill  last  knight.  He 
disclaims  any  intention  on  his  part  to  ignore  my  claim.  But 
he  is  such  a  Lyer  can't  believe  him.  It  is  a  matter  of  aston- 
ishment to  every  Person  in  St.  Paul,  to  see  the  way  Jim 
handles  Mr.  Stephens.  *  *  *  You  must  not  blame  me 
if  I  should  try  to  get  even  with  Jim  Hill  before  I  leave 
here." 

Mr.  Farley's  story  was  supported  on  the  witness  stand  by 
Mr.  Fisher,  who  at  the  time  he  testified,  was  President  of 
the  St.  Paul  &  Duluth  Railroad.  Mr.  Kittson  had  died 
before  the  case  came  to  trial,  but  Mr.  Hill,  in  his  testimony, 
denied  emphatically  that  there  had  been  an  agreement  with 
Farley,  and  that  Farley  had  been  in  any  way  a  partner  in 
the  enterprise.  In  this  he  was  supported  by  depositions 


ROMANTIC   HISTORY  OF  THE  DUTCH   BONDHOLDERS       29 

from  Stephen,  Smith  and  others.  Certain  letters  that  it 
was  said  Farley  had  written  to  John  S.  Kennedy  in  New 
York,  letters  that,  according  to  his  lawyers,  would  help  ma- 
terially to  establish  his  case,  he  was  not  able  to  put  in  evi- 
dence because,  as  was  asserted  at  the  trial,  Mr.  Kennedy 
went  to  Switzerland  when  the  suit  was  begun  and  remained 
there  out  of  the  court's  jurisdiction,  refusing  to  furnish  the 
letters  or  copies  thereof.  Mr.  Kennedy  died  not  long  ago, 
leaving  a  great  fortune,  much  of  which  was  bequeathed  to 
charity,  causing  many  enthusiastic  panegyrics.  In  the  list 
of  his  possessions,  published  at  that  time,  appeared  quanti- 
ties of  securities  in  what  are  known  as  the  Hill  properties. 
His  name  occurs  frequently  through  this  narrative ;  through 
his  firm,  for  example,  the  first  foreclosure  suit  was  begun 
which  resulted  in  the  receivership. 

When  Mr.  Farley's  suit  was  tried  in  the  United  States 
Circuit  Court,  it  was  dismissed  on  the  ground  that  the  al- 
leged agreement  had  not  been  established,  and  even  if  it  had 
been,  it  would  have  been  improper  and  illegal,  because  it 
was  made  with  a  Receiver,  who  was  an  officer  of  the  court 
and  the  guardian  of  the  property.  Farley  appealed  and  se- 
cured an  order  for  a  new  hearing.  Finally,  the  case  came 
for  decision  on  its  merits  to  the  Supreme  Court,  which,  on 
December  11,  1893,  ruled  against  Farley.  Justice  Shiras 
wrote  the  opinion,  which  was  based  solely  on  Farley's  fail- 
ure to  establish  the  agreement,  the  Justice  pointing  out  that 
nothing  in  the  nature  of  a  written  contract  or  memorandum 
of  the  agreement  had  been  submitted,  and  that  Farley  being 
a  man  of  affairs,  "it  was  unlikely  he  would  rely  in  an  affair 
of  such  magnitude  upon  a  merely  verbal  agreement."  How, 
being  a  Receiver,  he  could  have  put  his  name  to  a  written 
agreement  of  that  character,  did  not  appear. 

After  this  final  disposition  of  the  matter,  the  Canadians 
were  left  in  undisturbed  possession  of  the  property.  Mean- 
time the  great  tide  of  settlers  into  the  Northwest  had  filled 


30  STORIES    OF    THE    GREAT    RAILROADS 

the  country;  cities  and  towns  grew  almost  overnight  on  the 
prairies;  the  fertile  land  began  to  produce  monster  wheat 
crops ;  Minneapolis  and  St.  Paul  developed  into  a  great  me- 
tropolis ;  the  railroad  traffic  piled  up ;  the  line  was  extended 
year  by  year ;  Winnipeg  and  the  Canadian  Northwest  began 
to  attract  a  great  population ;  this  railroad  was  the  grand 
highway  of  Manitoba  travel ;  a  flood  of  profits  rolled  in  upon 
the  fortunate  owners. 

Mr.  Stephen  and  Mr.  Smith  used  theirs  in  furthering  their 
social  ambitions  in  England;  Mr.  Stephen  becoming  Lord 
Mount  Stephen,  Mr.  Smith  becoming  first  Sir  Donald 
Smith,  and  then  Lord  Strathcona.  Mr.  Hill  used  his  share 
to  extend  his  railroad  holdings.  First  he  built  his  railroad 
(now  reorganized  again  into  the  Great  Northern)  through 
to  the  Pacific  coast.  Then  he  secured,  with  his  share  of 
the  profits,  control  of  the  Northern  Pacific,  and  of  the  great 
Burlington  system.  To  these  he  added  road  after  road 
until  in  December,  1908,  he  completed  his  gigantic  system 
with  the  Colorado  &  Southern,  and  held  in  his  control  trunk 
lines  from  the  Great  Lakes  to  the  Pacific  Ocean,  and  from 
the  Canadian  border  to  the  Gulf  of  Mexico,  approximately 
twenty-five  thousand  miles  of  track,  traversing  and  dominat- 
ing an  area  fitly  termed  the  Inland  Empire,  of  which,  as  he 
owns  the  highways,  he  is  the  practical  ruler.  When  to  these 
advantages  you  add  newspapers,  politicians,  conventions, 
parties,  houses,  lands,  farms,  sycophants,  praise-chanters, 
knee-crookers,  legislatures,  senators,  and  other  matters,  here 
appears  one  of  the  most  colossal  figures  of  the  times. 

Why  recite  these  things  now?  The  Past  is  past:  let  it 
be. 

True.  But  I  recite  them  because  they  have  direct  and 
absolute  bearing  upon  the  greatest  public  question  that  this 
generation  will  have  to  deal  with.  We  cannot  think  that 
much  longer  we  shall  be  able  to  dodge  that  issue:  it  is  too 
insistent  and  too  important. 


ROMANTIC    HISTORY   OF  THE  DUTCH    BONDHOLDERS       31 

Some  other  considerations  are  also  to  be  noted. 

M.r.  Hill  is  admitted  by  most  of  his  adulators  to  have 
some  slight  imperfections,  but  these  are  generously  over- 
looked because  he  is  alleged  to  have  used  some  of  his  vast 
profits  (made  out  of  nothing)  to  develop  the  Northwest.  I 
purpose  to  show  in  a  succeeding  chapter,  exactly  how  he 
has  developed  the  Northwest,  and  to  that  showing  what 
has  been  recalled  here  from  his  other  achievements  was 
an  indispensable  preliminary. 

Furthermore,  Mr.  Hill,  being  declared  so  loudly  to  be 
able,  generous,  honest  and  successful,  and  having  risen  in 
this  marvelous  fashion  from  penury  to  great  wealth,  may 
well  be  taken  as  the  perfect  type  of  the  product  of  that  free 
opportunity  that  America  is  said  to  offer  to  all  men  and  of 
which  we  are  so  proud.  Therefore,  it  should  be  well  to  see 
exactly  what  the  gathering  of  this  great  fortune  and  great 
power  has  meant  for  Mr.  Hill  and  meant  for  other  persons 
— to  the  end  that  we  may  the  better  judge  whether  this  free 
opportunity  is  all  of  the  public  benefit  we  have  held  it  to  be. 

In  the  next  place  Mr.  Hill  is  much  admired  because  he 
has  served,  without  salary,  as  General  Manager  and  as 
President  of  his  railroad.  If  he  had  been  paid  a  salary  of 
$50,000  a  year,  he  would  by  this  time  have  drawn  from  the 
enterprise  $1,600,000. 

He  has  had  no  salary,  but  he  has,  with  Lord  Mount 
Stephen  and  Lord  Strathcona  and  others,  drawn  from  the 
enterprise  his  share  of  a  very  much  larger  sum. 

To-wit,  four  hundred  and  seven  million  dollars. 

This  sum,  with  which  the  partners  have  been  endowed 
as  one  of  the  results  of  the  original  agreement,  is  exclusive, 
please  note,  exclusive  of  all  dividends,  interest,  or  other 
emoluments — four  hundred  and  seven  million  dollars  in 
thirty  years.  Does  that  amount  seem  incredible  or  stupend- 
ous to  you?  I  assure  you  it  is  only  a  part  of  the  colossal 
profits  coined  from  an  investment  of  nothing  by  this  most 


32  STORIES    OF    THE    GREAT    RAILROADS 

wonderful  of  all  machines,  and  when  you  come  to  see  the 
full  balance  sheet  of  these  operations,  you  will  agree  with 
me  that  never  before  have  there  been  such  marvelous  re- 
sults from  a  beginning  so  inconsiderable. 

I  propose  next  to  show  just  how  the  partners  were  put 
in  possession  of  this  money,  and  who  furnished  it. 

Will  the  showing  be  interesting  to  you?  It  will  be  if 
your  monthly  rent  interests  you,  or  your  butcher  bill,  or 
your  coal  bill,  or  your  grocery  bill ;  because  to  each  of  these 
items  the  story  I  have  to  tell  has  a  direct  relation. 

Finally,  the  transcontinental  railroads  of  this  country 
adopted  on  January  1,  1909,  an  increase  of  freight  rates 
ranging  from  three  to  eighteen  per  cent,  and  calculated  to 
produce  for  them  an  increased  annual  revenue  of  many 
millions  of  dollars.  When  we  are  through  with  the  study 
of  these  matters  you  will  see  exactly  how  fair,  reasonable, 
and  necessary  is  this  increase,  and  how  just  it  is  that  to 
furnish  this  additional  income,  you  should  pay  more  for 
your  meat,  your  fuel,  and  your  shelter. 


CHAPTER  II. 

THE  ROMANCE  OF  THE   INLAND   EMPIRE. 

And  now  for  the  exact  way  in  which  this  tremendous, 
incalculable  power  we  bestowed  upon  Mr.  Hill  and  his 
friends,  "builds  up  the  Northwest" — also  other  regions. 

Take  a  map  of  the  United  States  and  study  attentively 
the  distribution  of  the  large  cities.  You  will  observe  that 
after  you  leave  the  Atlantic  seaboard,  the  natural  population 
centers  are  about  equidistant. 

Pittsburg  is  about  as  far  from  the  coast  as  Buffalo  is, 
Cleveland  is  situated  relatively  much  like  Detroit;  you  go 
four  hundred  and  twenty  miles  northwest  of  Chicago  and 
find  the  metropolis  of  St.  Paul  and  Minneapolis,  or  you  go 
five  hundred  miles  southwest  and  you  find  Kansas  City,  or 
five  hundred  miles  due  west  and  find  Omaha.  Denver  is  as 
far  from  Omaha  as  Omaha  is  from  Chicago ;  Salt  Lake  City 
is  another  five  hundred  miles'  remove.  Portland,  Oregon, 
is  about  seven  hundred  miles  north,  and  Los  Angeles  about 
five  hundred  miles  south  of  San  Francisco.  Cities  like  At- 
lanta and  Fort  Worth,  even  though  inland,  are  clearly 
destined  to  be  great  central  points  for  production  and  dis- 
tribution. Streams  of  trade  head  for  such  places;  inevita- 
ble markets  for  vast  areas  of  rich  country,  they  are  noted  of 
men  as  the  industrial  capitals  to  be. 

In  the  far  Northwest  the  obvious  inland  center,  having 
not  alone  the  favored  situation,  but  a  marvelous  combina- 
tion of  natural  advantages,  is  the  City  of  Spokane,  Wash- 
ington. 

It  is  about  three  hundred  and  forty  miles  inland  from  any 

33 


34          STORIES  OF  THE  GREAT  RAILROADS 

Pacific  Coast  City;1  it  is  fifteen  hundred  miles  west  of  St 
Paul  and  Minneapolis;  there  is  no  indication  of  any  other 
metropolis  within  three  or  four  hundred  miles. 

Beyond  all  this,  it  is  the  natural  center  and  market  place 
for  an  enormous  area  of  marvelously  fertile  and  very  beau- 
tiful country,  the  true  garden  spot  of  the  Northwest,  the 
granary  and  orchard  of  that  part  of  the  national  territory, 
one  hundred  and  fifty  thousand  square  miles,  so  rich  in  so 
many  different  ways  that  probably  twenty  million  people 
could  be  supported  there. 

Of  all  this  magnificent  region,  Spokane  is  the  cross-roads 
and  supply  depot.  Eastern  Washington,  eastern  Oregon, 
northern  Idaho,  western  Montana  and  part  of  British  Co- 
lumbia are  embraced  in  the  Spokane  country.  Here  the 
wheat  fields  grow  more  than  forty-five  million  bushels  of 
wheat  every  year,  the  orchards  yield  nine  or  ten  million  dol- 
lars' worth  of  fruits,  the  dairies  yield  about  five  million  dol- 
lars' worth  of  their  products,  there  are  lumber,  lead,  silver, 
gold  and  copper ;  coal  is  not  far  away. 

Three  hundred  billion  feet  of  timber  stand  in  this  region 
and  a  great  lumber  industry  is  indicated. 

Above  all,  Spokane,  situated  at  the  falls  of  the  Spokane 
River,  has  the  incalculable  advantage  of  water  power.  It 
is  perfectly  equipped,  therefore,  to  be  a  great  manufacturing 
as  well  as  a  great  commercial  center.  In  the  sanguine  local 
literature,  it  is  termed  the  Power  City. 

Taking  a  comprehensive  view  of  the  Spokane  country,  its 
fertility,  extent,  resources,  location,  you  would  naturally  ex- 
pect Spokane  to  be  a  great  city.  You  would  look  for  200,- 
000  or  250,000  people  in  a  city  so  blessed  with  every  natural 
advantage. 


'Four  hundred  miles  from  Seattle  by  the  Northern  Pacific  Rail- 
road, five  hundred  and  forty-one  miles  from  Portland,  three  hun- 
dred and  thirty-nine  miles  from  Seattle  by  the  Great  Northern 
Railroad. 


THE   ROMANCE   OF   THE    INLAND   EMPIRE  35 

Spokane  has  not  250,000  people,  nor  200,000.  The  cen- 
sus of  1910  gave  its  population  as  104,402. 

Not  alone  is  the  population  of  the  city  below  the  normal, 
but  the  industrial  development  is  impressively  small. 

The  magnificent  water  power  largely  goes  to  waste.  Of 
all  kinds  of  production  that  can  be  called  manufacturing, 
the  annual  total  is  only  about  $9,000,000.  With  such  a 
country  about  it,  with  such  natural  wealth  poured  into  its 
lap,  a  total  twenty  times  as  great  would  not  be  by  this  time 
an  unreasonable  expectation.  Yet  Spokane  sticks  at  104,- 
402  people  and  $9,000,000  of  manufactures. 

So  sticks  all  the  Inland  Empire. 

What  is  the  trouble?  Why  does  it  not  grow?  No  nat- 
ural disadvantage  interferes.  Location  most  charming;  cli- 
mate mild,  healthful,  invigorating;  a  beautiful  city  in  a 
beautiful  environment ;  nothing  is  lacking  here.  Nor  is  one 
known  quality  of  progress  deficient  in  this  people;  for  per- 
tinacity and  public  spirit,  for  industry  and  zeal  and  all  the 
other  civic  virtues,  I  know  not  how  or  where  they  can  be 
excelled.  And  yet  the  capital  of  the  Inland  Empire  sticks 
fast.  What  is  the  matter? 

This  is  the  matter : 

It  is  strangled  with  railroad  rates. 

That  is  all — Spokane  and  the  whole  Spokane  country. 

How?    Thus: 

Spokane  is  reached  by  four  great  trans-continental  rail- 
road systems  and  several  branch  lines. 

Towns  are  accustomed  to  view  such  facilities  as  an  asset 
of  great  value.  In  the  case  of  Spokane  and  the  Spokane 
country,  it  has  been  no  asset,  but  a  terrible  injury. 

The  transcontinental  systems  are  the  Great  Northern,  the 
Northern  Pacific,  the  Canadian  Pacific,  and  the  Union  Pa- 
cific (Oregon  Railroad  &  Navigation  company). 

These  lines,  supposed  by  a  convenient  fiction  to  be  rivals 
and  to  furnish  the  shipping  public  with  what  we  are  pleased 


36  STORIES    OF    THE    GREAT    RAILROADS 

to  call  the  advantages  of  competition,  are  practically  one  so 
far  as  the  Spokane  country  is  concerned. 

That  is  to  say,  they  have  formed  an  iron-bound  compact 
the  essence  of  which  is  to  throttle  Spokane  and  the  whole 
Spokane  country — obligingly  referred  to  by  Mr.  Higginson 
as  "Mr.  Hill's  domain."  This  compact  is  doubtless  facili- 
tated by  the  fact  that  two  of  the  lines  mentioned  are  the 
property  of  Mr.  Hill,  being  part  of  the  wealth  we  conferred 
upon  the  Canadian  brotherhood,  as  related  in  the  foregoing 
chapter  of  this  chronicle. 

If  you  are  a  merchant,  or  manufacturer,  or  farmer  in 
this  domain,  it  makes  not  the  slightest  difference  which  of 
the  lines  you  choose  for  your  shipments.  By  one  or  by  all 
you  are  subjected  to  exactly  the  same  extortionate  rates. 

This  is  the  extortion:  Spokane  is  340  miles  east  of  Se- 
attle ;  the  haul  from  Chicago  to  Seattle  is  about  2,248  miles ; 
the  haul  from  Chicago  to  Spokane  is  only  1,980  miles.  The 
lines  by  which  freight  is  hauled  from  Chicago  to  Seattle 
pass  through  Spokane  and  go  340  miles  farther  to  reach 
Seattle.2  Is  that  clear?  Good.  To  a  traveler  passing  from 
Chicago  to  Seattle,  Spokane  is  relatively  like  Syracuse  to 
one  passing  from  New  York  to  Buffalo. 

Let  us  say  that  you  are  a  dry-goods  merchant  in  Spokane 
and  you  have  shipped  to  you  from  Chicago,  a  carload  of 
calico  and  other  fabrics  in  your  line.  On  that  carload  the 
freight  rate  that  you  will  pay  is  not  the  normal  freight  rate 
from  Chicago  to  Spokane,  1,980  miles,  but  the  normal 
freight  rate  from  Chicago  to  Seattle,  2,248  miles,  plus  (ap- 
proximately) the  normal  freight  rate  back  again  from  Seat- 
tle to  Spokane,  340  miles.  Thus  if  the  rate  from  Chicago 
to  Seattle  is  one  dollar  a  hundredweight,  and  the  local  rate 
on  the  same  commodity  from  Seattle  to  Spokane  is  thirty- 
five  cents,  the  rate  from  Chicago  to  Spokane,  340  miles 
nearer  to  Chicago,  and  on  the  same  line,  is  usually  about 


'I  have  used  in  all  these  calculations  the  shortest  distances. 


THE  ROMANCE  OF  THE   INLAND   EMPIRE  37 

$1.35  a  hundredweight.  I  know  full  well  that  if  you  have 
never  looked  into  the  subject  of  railroad  rates  in  America 
you  will  think  that  I  am  in  this  either  mad  or  imagining  a 
vain  thing.  Yet  I  am  but  reciting  the  certainties  of  the  tariff 
sheets.  All  the  railroads  actually  do  charge  to  the  Spo- 
kane country  what  they  charge  to  the  Pacific  coast,  plus  the 
rate  back  from  the  Pacific  coast  to  the  Spokane  country. 
They  do  it  now,  they  have  been  doing  it  for  many  years, 
they  will  probably  keep  on  doing  it;  and  so  long  as  they  do 
it  the  Inland  Empire  will  stick  where  it  is.  This  is  the  way 
the  railroads  develop  the  Northwest. 

Merely  as  an  illustration  I  have  supposed  a  shipment 
from  Chicago.  The  rule  holds  good  on  shipments  from  all 
other  eastern  points;  shipments  from  New  York,  Boston, 
Philadelphia,  Pittsburg,  or  other  cities  to  the  Spokane  prov- 
ince of  "Mr.  Hill's  domain"  must  pay  the  rate  to  the  Pa- 
cific coast  and  then  the  rate  back  from  the  Pacific  coast  to 
their  destination.  A  wholesale  dealer  in  a  Pacific  coast 
city  can  get  his  goods  from  New  York  and  have  them 
shipped  to  his  own  city  and  reshipped  to  towns  in  the  Spo- 
kane district,  and  the  total  freight  rate  is  substantially  the 
same  as  if  they  had  been  shipped  originally  to  Spokane, 
although  meantime  they  have  traveled  680  miles  farther 
than  they  would  have  traveled  if  they  had  been  sent  direct 
to  Spokane,  through  which  city  they  were  actually  hauled 
when  they  went  to  the  Pacific  coast  and  to  which  they  now 
return. 

In  other  words,  if  the  rate  from  New  York  to  Spokane 
is  fair,  then  the  rest  of  the  haul  from  Spokane  to  the  coast 
and  back,  680  miles,  is  performed  for  nothing.  To  this 
practice  all  the  railroads  are  equally  committed. 

But,  you  say,  what  is  the  reason  for  this  most  singular 
performance?  Railroads  are  not  ordinarily  conducted  on 
whim  or  caprice.  There  must  be  some  reason  for  this  dis- 
crimination. Surely.  There  are,  in  fact,  not  one  but  three 


38  STORIES    OF    THE    GREAT    RAILROADS 

reasons.  The  first  is  that  the  railroads  have  the  power  and 
can  lay  the  Spokane  or  any  region  under  such  tribute 
as  they  may  be  pleased  to  exact.  They  can;  therefore  they 
do.  You  will  not  find  this  reason  mentioned  in  the  argu- 
ments for  the  railroads,  but  be  not  disappointed;  it  exists, 
nevertheless. 

The  second  reason,  on  which  the  railroads  lay  great 
stress,  is  that  their  capitalization  and  value  are  such  that  if 
they  were  to  reduce  the  rates  to  the  Spokane  country  by  no 
possibility  could  they  earn  a  fair  interest  on  their  capital. 
You  will  see  a  little  later  how  just  and  fair  is  this  reason. 

The  third  reason  is  that  there  is  water  competition  to  the 
Pacific  Coast  points  and  none  to  Spokane. 

Water  competition?  How  is  that?  Why,  a  shipper  can 
sometimes  send  something  from  New  York  around  Cape 
Horn  to  San  Francisco.  The  plea  of  the  railroads  is  that 
they  made  a  low  rate  to  the  Pacific  coast  cities  to  meet  this 
competition. 

I  invite  careful  attention  to  this  plea,  because  it  shows  us 
exactly  how  freight  rates  are  made  in  this  country. 

Water  shipments  via  Cape  Horn  at  the  time  the  railroads 
began  this  practice,  were  made  in  sailing  vessels.  Very  few 
vessels3  were  engaged  in  the  trade,  and  these  sailed  irregu- 
larly. From  New  York  to  San  Francisco  averaged  about 
one  hundred  and  fifteen  days.  The  merchandise  that  could 
be  transported,  subject  to  such  delay,  was  limited  in  char- 
acter and  of  small  amount.  Not  one  shipper  in  ten  thou- 
sand knew  of  the  existence  of  the  water  route;  not  one  in 
twenty  thousand  could  use  it.  Yet  because  of  this  compe- 
tition, which  existed  only  in  name,  the  railroads  put  on  an 
extra  rate  to  the  interior  points,  asserting  that  the  lower  rate 
to  the  coast  cities  was  the  result  of  water  competition. 

This  seems  sufficiently  ridiculous,  and  yet  it  is  only  a 


"The  navigation  laws  compel  such  shipments  to  be  made  in  Amer- 
ican vessels,  and  there  are  very  few  American  vessels. 


THE  ROMANCE  OF   THE   INLAND   EMPIRE  39 

small  part  of  the  story.  Admitting  that  a  man  could  ship 
something  from  New  York  to  the  Pacific  coast  by  one  of 
these  occasional  sailing  vessels,  he  certainly  could  not  so 
ship  it  from  Pittsburg,  Chicago,  Alabama,  Muncie,  Colum- 
bus, Atlanta,  or  St.  Paul.  And  yet  the  discrimination  in 
rates  was  applied  to  shipments  from  all  these  places  exactly 
as  to  rates  from  New  York. 

Again,  admitting  that  the  bugaboo  of  an  occasional  old 
hooker  beating  her  way  through  the  Cape  Horn  squalls  was 
sufficiently  terrifying  to  excuse  a  rate  to  Seattle  as  low  as 
the  rate  to  Spokane,  what  excuse  could  any  ingenuity  find 
for  the  addition  of  the  local  rate  back  from  Seattle  to  Spo- 
kane on  shipments  made  directly  to  Spokane  from  Eastern 
points  ? 

I  do  not  know.  Except  for  the  explanation  contained  in 
the  first  reason,  that  mystery  remains  insoluble. 

But  at  least  there  the  rates  were,  and  there  they  remained, 
and  because  of  these  rates  Spokane  did  not  fulfill  its  obvious 
destiny,  it  did  not  become  a  great  metropolis,  the  Spokane 
country  did  not  become  populous,  the  almost  unexampled 
resources  were  not  developed,  the  region  capable  of  sup- 
porting many  millions,  had  a  population  of  three  hundred 
thousand. 

Of  course !  What  good  lies  in  fertile  soil  if  you  cannot 
market  its  products?  Of  what  use  is  water  power  if  it 
makes  nothing  that  can  be  sold?  Of  what  use  is  any  ad- 
vantage of  situation  if  the  railroads  embargo  shipments? 

Against  this  deadly  condition  the  people  of  Spokane 
groaned  and  protested.  To  the  injustice  from  which  they 
suffered  was  added  a  needless  aggravation:  they  had  been 
fooled  and  disappointed.  Having  been  brought  up  in  the 
school  of  economics  that  resolutely  holds  competition  to  be 
the  infallible  cure-all,  they  had  believed  their  rate  troubles 
to  arise  from  having  too  few  railroads  and  too  little  compe- 
tition. They  welcomed  the  coming  of  a  new  line  only  to 


40         STORIES  OF  THE  GREAT  RAILROADS 

find  it  joined  hands  with  the  oppressor.  The  more  railroads, 
the  stronger  the  combination  to  maintain  the  oppressive 
rates.  Whenever  their  hope  has  been  raised  by  the  promise 
of  competition,  it  has  been  immediately  disappointed  when 
the  new  line  began  to  be  operated. 

Yet  the  very  suggestive  fact  remains  that  in  all  these  years 
of  struggle  the  policy  of  the  railroads  has  steadily  violated 
the  intention  and,  so  far  as  a  mere  plain  citizen  can  see,  the 
letter  of  the  Interstate  Commerce  Act. 

By  the  fourth  clause  of  that  act  a  railroad  is  strictly  for- 
bidden to  charge  more  for  a  short  haul  than  it  charges  for  a 
long  haul.  This  is  precisely  what  the  railroads  do  here. 
They  charge  more  for  a  haul  to  Spokane  than  they  charge 
for  a  haul  to  Seattle,  three  hundred  and  forty  miles  farther. 

How,  then,  if  it  is  so  clearly  illegal,  do  the  railroads  man- 
age to  continue  this  practice  ? 

Quite  simply.  In  every  one  of  these  regulative  laws  there 
is  a  joker.  The  joker  in  this  law  is  a  provision  that  the 
fourth  clause  is  suspended  when  "controlling  competition" 
exists.  The  railroads  merely  said  that  this  was  such  a  case, 
and  that  the  possibility  of  shipping  some  things  occasionally 
around  the  Horn  in  a  sailing  vessel  was  "controlling  compe- 
tition." What  it  controlled,  or  how  and  where,  when  or 
with  what  it  competed,  no  one  ever  explained.  The  ghost 
of  an  American  clipper  was  seen  at  long  intervals  off  the 
Cape,  and  that  was  a  reason  why  freight  from  Chicago  to 
Spokane  should  bear  an  extra  rate  of  thirty  per  cent. 

To  what  extent  it  is  "controlling"  may  be  readily  gauged. 
In  recent  years  the  phantom  clipper  has  disappeared  and 
there  is  now  operated  from  New  York  to  Hawaii,  calling  at 
San  Francisco,  a  line  of  steamers. 

The  utmost  capacity  of  these  steamers,  including  what 
they  carry  to  Hawaii  and  what  they  carry  to  San  Francisco, 
is  stated  in  the  brief  of  the  Great  Northern  Railway  Com- 
pany to  be  250,000  tons  a  year,  and  when  their  freight  is 


THE  ROMANCE  OF  THE   INLAND  EMPIRE  41 

landed  at  San  Francisco  it  is  still  nine  hundred  miles  from 
Seattle.  When  you  contemplate  these  facts  you  will  be  lost 
in  wonder  at  the  supreme  and  unsurpassable  audacity  of  the 
American  railroad  management.  You  should  not  let  your 
admiration  obscure  from  you  the  fact  that  the  fruits  of  this 
audacity  are  reflected  daily  in  your  grocery  bills,  meat  bills, 
tailor  bills  and  rent. 

But  to  return  to  the  long-suffering  people  of  Spokane, 
who  are,  after  all,  but  a  type  of  the  American  community 
in  the  hands  of  the  American  railroad.  From  the  some- 
what despondent  and  cynical  mood  that  I  have  mentioned 
as  the  result  of  the  failure  of  competition  to  relieve  their 
distress,  .they  were  now  happily  aroused  by  the  appearance 
of  a  new  and  rosy  harbinger  of  joy,  being  none  other  than 
our  old  friend,  Mr.  James  J.  Hill. 

In  the  year  of  grace  1889  Mr.  Hill  had  been  for  ten  years 
in  the  enjoyment  of  the  wealth  wherewith  the  good-natured 
and  confiding  Americans  had  so  pleasantly  endowed  him. 
His  path  had  fallen  in  goodly  places;  from  an  investment 
of  nothing  he  and  his  fellow  Canadians  had  reaped  (in  ways 
presently  to  be  shown),  profits  of  many  millions.  So  sud- 
den and  so  dazzling  an  ascent  can  hardly  be  paralleled  in 
even  our  gracious  annals  of  good  fortune.  But  a  dozen 
years  back  and  he  had  been  a  lowly  commission  merchant 
in  St.  Paul,  appraising  pats  of  butter  and  baskets  of  eggs; 
and  now  stood  he  forth  a  financial  Colossus  with  a  great  and 
populous  region  for  what  Mr.  Higginson  calls  "his  domain," 
in  which,  as  he  owned  the  highways  he  was  practically  ruler. 
And  all  made  almost  automatically  by  the  mere  revolving  of 
a  machine  that  rested  neither  day  or  night,  grinding  out 
profits.  How  poor  by  comparison  seem  the  tales  of  Ori- 
ental enchantment  and  the  Magic  Lamp! 

Naturally  Mr.  Hill  thought  well  of  this  machine  and 
was  bent  upon  extending  and  enlarging  it  that  it  might  coin 
yet  more  money  for  its  fortunate  owners.  He  had,  there- 


42         STORIES  OF  THE  GREAT  RAILROADS 

fore  (as  I  mentioned  in  the  last  chapter),  re-organized  the 
original  St.  Paul,  Minneapolis  &  Manitoba,  under  which 
name  he  and  his  fellow  Canadians  had  secured  the  machine, 
and  renamed  it  the  Great  Northern,  a  railroad  having 
branches  in  many  directions.  One  of  these  branches  he  de- 
termined to  extend  from  St.  Paul  to  the  Pacific  Coast. 

There  was  already  one  line  of  railroad  from  St.  Paul  to 
the  Pacific  coast — the  Northern  Pacific,  a  name  none  too 
fragrant  in  our  commercial  history,  for  it  had  been  the  re- 
cipient of  monster  grants  of  the  public  land  and  had  been 
plundered  and  wrecked  and  revived  and  plundered  again,  in 
the  highest  style  of  the  art.  Mr.  Hill  decided  to  build  a  line 
that  would  reach  all  the  important  places  reached  by  the 
Northern  Pacific  and  be  so  cheaply  built  and  so  lightly 
loaded  with  bonds,  stocks,  preferred  stocks,  debentures,  re- 
funding certificates,  consolidated  mortgages  and  other 
agreeable  mementos  of  plunder  that  with  it  he  should  have 
the  Northern  Pacific  at  his  mercy.  That  is  to  say,  he  meant 
that  if  it  came  to  rate-cutting,  he  could  cut  the  heart  out  of 
the  Northern  Pacific  and  possess  himself  of  the  carcass. 

This  benevolent  purpose  he  carried  out  to  the  letter.  Few 
railroads  have  been  more  cheaply  built.  To  the  engineers 
the  instructions  were  to  find  the  low  levels,  so  that  the 
grades  on  the  line  are  usually  less  than  one  per  cent. 

And  then  the  people  along  the  route  were  invited  to 
assist  the  enterprise  by  contributions  from  their  own  slen- 
der purses. 

On  what  ground?  On  the  ground  that  Mr.  Hill  was  to 
free  them  from  the  deadly  grip  and  devastating  blight  of 
railroad  monopoly. 

Happy  thought!  said  the  people.  Let  us  be  free  from 
this  terrible  monster.  So  they  gave  of  their  substance  and 
Mr.  Hill  built  his  railroad. 

In  due  time  he  dawned  thus  upon  the  oppressed  and 
weary  citizens  of  the  Spokane  country,  bringing  glad  tidings 
of  great  joy. 


THE  ROMANCE  OF   THE   INLAND   EMPIRE  43 

If  you  doubt  that  literally  he  dawned,  go  back  to  the 
newspaper  files  of  the  period  and  see. 

It  was  February  9,  1892,  when  Mr.  Hill  came  to  Spokane 
town  in  his  private  car  over  the  Northern  Pacific  railroad, 
and  in  an  interview  in  the  Spokane  Review  of  February 
10th,  the  good  news  was  heralded  to  all.  Mr.  Hill  was 
pushing  his  railroad  westward,  headed  straight  toward  Spo- 
kane. He  hoped  it  would  reach  Spokane,  he  most  earnestly 
desired  that  it  should.  And,  indeed,  it  would — if  certain 
difficulties  could  be  cleared  away.  You  see  the  natural  line 
of  the  railroad  was  north  of  the  city.  Mr.  Hill  desired 
with  all  his  heart  that  the  railroad  should  not  pass  by  with- 
out entering,  but  to  come  in  would  involve  a  very  great  ex- 
pense— that  was  the  trouble,  a  very  great  expense. 

I  understand  that  even  in  those  days,  Mr.  Hill  had  ac- 
quired something  of  the  large,  warm,  patriarchal  manner 
that  has  since  become  so  justly  famous,  and  we  can  readily 
imagine  how  impressive  were  these  words  that  next  fell 
from  his  lips. 

"We  come  to  give  you  people  the  lowest  possible  rates, 
which  are  absolutely  necessary  for  the  development  of  the 
country,  and  to  do  that,  we  must  have  a  cheaply  operated 
road.  The  rates  you  people  are  paying  at  the  present  time 
are  in  many  cases  absolutely  prohibitive,  and  are  very  much 
higher  than  they  ought  to  be.  *  *  *  I  hear  your  coal 
costs  you  $8  per  ton.  It  ought  not  to  be  more  than  half  of 
that,  and  when  my  road  gets  in  here,  you  will  be  supplied 
with  fuel  at  not  near  that  rate.  *  *  *  We  propose,  too, 
to  give  you  people  a  rate  on  flour  so  low  that  the  whole 
grain  crop  of  the  Palouse  country  and  the  Big  Bend  will  be 
drawn  here  and  converted  into  flour." 

The  heart  of  Spokane  leaped  with  joy.     No  wonder! 

In  the  midst  of  the  loud  acclaim,  the  mayor  issued  a  proc- 
lamation, a  grand  mass  meeting  was  called  in  the  Audi- 
torium, all  classes  of  citizens  packed  the  hall.  Mr. 


44  STORIES    OF    THE    GREAT    RAILROADS 

made  a  speech,  declared  by  the  Spokane  Review  to  be  "A 
Plain  and  Manly  Statement  of  Facts."  It  was  greeted 
with  salvos  of  applause.  Mr.  Hill  again  expressed  his  ar- 
dent desire  to  bring  the  Great  Northern  into  Spokane  in- 
stead of  carrying  it  along  to  the  north.  But  there  was  that 
same  difficulty  in  the  way — the  great  expense.  To  build  the 
line  into  Spokane  would  cost  a  million  dollars,  and  the  com- 
pany could  not  really  afford  such  an  outlay. 

"Some  gentlemen  whom  I  have  met,"  said  Mr.  Hill  (I 
quote  from  the  report  in  the  Spokane  Review  of  February 
12th),  "have  raised  the  point  as  to  what  would  be  our 
policy  when  our  road  is  completed  in  regard  to  the  present 
method  of  making  tariff  [rate  discriminations].  I  say 
frankly  that  our  policy  will  be  to  back  the  country  where 
the  Great  Northern  goes  through.  You  can  make  a  dis- 
tributing point  of  Spokane  and  compete  with,  if  not  surpass, 
other  distributing  centers  in  this  community  [Applause] 
and  we  should  not  feel  that  we  are  doing  ourselves  justice 
if  we  cannot  bring  goods  here  to  sell  at  a  competing  point 
less  than  any  city  west  or  south  of  here."  [Applause.] 

Yet  there  was  still  the  one  sad  fact  about  the  expense. 
Even  this,  however,  was  not  a  condition  wholly  without 
hope.  Mr.  Hill  had  looked  the  situation  over  and  he  saw 
one  way  out.  If  Spokane  would  present  the  railroad  with 
the  right  of  way  through  the  city  the  matter  of  expense 
would  be  overlooked.  [Tremendous  applause.] 

A  right  of  way?  That  all?  Spokane  went  out  to  get 
it  overnight.  The  newspapers,  always  foremost  in  good 
works,  made  fervent  appeals,  the  best  citizens  took  off  their 
coats  and  rested  not  from  the  toil  of  gathering  subscrip- 
tions ;  a  great  wave  of  enthusiasm  swept  over  the  com- 
munity. Freedom  was  in  sight,  here  came  the  herald  there- 
of with  the  magic  emblem  upon  his  banners  inscribed,  and 
an  editorial  in  the  Spokane  Review  warned  the  citizens 
that  whosoever  should  be  backward  or  reluctant  in  this 


THE   ROMANCE  OF   THE   INLAND   EMPIRE  45 

great  crisis  must  look  well  to  himself  thereafter.  "The 
occasion,"  said  the  Review,  ucalls  for  the  supreme  effort  of 
encouragement.  No  man  who  at  this  critical  juncture  in 
the  history  of  the  city  should  fail  to  come  forward  with  the 
most  liberal  tokens  of  assistance  need  ever  afterwards  to 
be  considered  a  true  friend  of  the  city.  The  occasion  is 
one  when  lack  of  generosity  and  public  spirit  will  be  little 
better  than  a  crime." 

Meanwhile  Mr.  Hill  was  not  silent.  In  an  interview  pub- 
lished February  14th,  he  eloquently  denounced  the  wicked 
practice  of  the  railroads  already  in  Spokane  by  which  they 
discriminated  against  the  city.  Their  invariable  rule  of 
making  the  rate  to  the  Pacific  coast  plus  the  rate  back, 
seemed  to  him  not  only  evil  but  clearly  illegal.  He  gently 
rebuked  the  people  of  Spokane  for  complaining  to  the  In- 
terstate Commerce  Commission  about  such  a  matter.  They 
should  have  gone  at  once  to  the  courts,  refused  to  pay 
the  extortion  and  compelled  a  test  case.  "I  don't  think  that 
a  jury  of  twelve  men,"  said  Mr.  Hill,  "could  have  been 
found  to  decide  that  such  a  charge  was  legal." 

As  for  the  competition  of  water  carriers,  a  fig  for  that! 
"We  are  not  coming  here  to  show  fear  of  the  water  car- 
riers," said  Mr.  Hill.  "If  we  had  been  afraid  of  them 
we  would  not  now  be  building  our  road  to  the  coast." 

At  this  bold  declaration  the  last  doubter  in  Spokane  sur- 
rendered. Here  was  clearly  the  railroad  Moses.  Deliver- 
ance was  at  hand.  When  the  poorest  resident  of  the 
city  read  that  statement  he  fished  up  another  nickel  and 
the  well-to-do  added  from  their  hoards. 

So  the  sum  required  was  raised;  $70,000  and  the  right 
of  way,  five  miles  long,  straight  through  the  city,  were 
conferred  upon  Mr.  Hill  according  to  his  desire ;  the  Great 
Northern  was  built  into  and  beyond  Spokane.  At  last  it 
reached  the  Pacific  coast  at  Seattle,  and  the  people  of  Spo- 
kane sat  down  to  watch  the  resulting  prosperity. 


46  STORIES    OF    THE    GREAT    RAILROADS 

Somehow  it  did  not  come.  For  a  time  the  Great  North- 
ern operated  on  a  lower  tariff  rate  than  the  other  roads. 
Presently  it  abandoned  this  tariff  and  adopted  precisely  the 
rates  and  methods  of  the  other  roads.  That  is  to  say,  it 
made  the  rate  to  Spokane  the  rate  to  the  Pacific  coast  plus 
the  rate  back. 

The  rosy  promises  of  Mr.  Hill  vanished  into  air — thin 
and  hot,  whereof  they  had  been  born. 

Spokane  had  given  of  its  money  and  bestowed  the  right 
of  way  five  miles  long  through  the  heart  of  the  city  mere- 
ly to  add  to  the  number  of  its  oppressors — simply  this  and 
nothing  more. 

Sadly  Mr.  Hill's  attention  was  called  to  the  discrepancy 
between  his  unctuous  promise  and  his  arid  performance. 
Alas !  that  great  and  good  man  had  become  afflicted  with  a 
malady  that  seems  reserved  for  the  great  and  good  in  his 
position.  He  had  lapsus  memorise  in  its  worst  form.  As 
to  everything  connected  with  his  visit  to  Spokane  his  mind 
seemed  a  blank. 

But  he  kept  the  $70,000  and  he  kept  the  right  of  way. 
The  malady  did  not  affect  his  power  to  keep  things;  only 
his  power  to  remember  things. 

Hence,  the  spoliation  of  Spokane  and  the  Inland  Empire 
goes  merrily  on  today  as  at  any  time  for  the  last  twenty- 
five  years. 

I  will  give  some  examples  of  the  rates  actually  charged 
that  I  may  show  just  what  these  things  mean  to  the  Inland 
Empire.  Incidentally  you  may  get  some  impression  of 
what  similar  things  mean  to  you.  You  can  see  that  if  a 
grocer  in  Spokane  is  charged  an  abnormal  freight  rate  on 
everything  he  sells  he  has  no  resource  but  to  pass  that  rate 
along  to  the  people  that  buy  of  him ;  so  that,  as  a  matter  of 
fact,  it  is  not  the  wholesaler  of  Spokane,  nor  the  retailer,  nor 
the  manufacturer,  that  pays  these  extortionate  rates,  but  al- 
ways and  invariably  the  consumer. 


THE   ROMANCE  OF   THE   INLAND   EMPIRE  47 

And  similarly,  you  that  do  not  live  in  Spokane  but  are 
subjected  to  the  like  extortionate  freight  rates,  it  is  not  the 
shipper  that  pays  these  rates,  nor  the  wholesale  merchant, 
nor  the  retail  merchant,  nor  anyone  in  the  world  but  just 
you,  the  consumer.  You  pay  them  all  and  each,  of  what- 
soever kind  and  for  whatsoever  purpose  levied.  You  pay 
whenever  you  purchase  anything  from  apples  to  zinc.  For 
every  dollar  of  watered  stock  and  needless  bonds,  you  pay. 
Every  time  the  merry  railroad  gentlemen  cut  what  they 
pleasantly  term  "another  watermelon,"  you  pay  for  it. 
Everything  you  eat  and  everything  you  wear  and  everything 
you  use  in  your  house  or  your  office  or  your  shop  has  an 
extra  price  to  pay  for  these  watermelons  and  the  like  good 
things. 

Bearing  in  mind  these  indisputable  facts,  you  should  find 
a  peculiar  interest  in  the  table  on  another  page  showing 
exactly  how  the  extra  price  was  landed  upon  the  people  of 
one  region.  I  hope  before  we  get  through  to  have  some 
other  tables  showing  how  the  extra  price  is  landed  upon 
people  in  other  regions. 

One  item  in  this  list  deserves  a  word  of  comment.  You 
may  note  that  in  one  case,  and  one  only,  that  of  pig  iron, 
the  rate  to  Spokane  is  the  same  as  the  rate  to  the 
coast  cities.  The  reason  is  instructive.  Up  to  1904  the 
freight  rate  on  pig  iron  from  Alabama  to  Spokane  was 
$21.90  a  ton,  which  was  $6.80  a  ton  more  than  the  rate 
from  Alabama  to  the  Pacific  coast.  Some  Spokane  men 
that  needed  pig  iron  discovered  they  could  buy  it  in  Eng- 
land, have  it  shipped  as  ballast  in  the  wheat  ships  to  Port- 
land, Oregon,  and  thence  by  rail  to  Spokane  at  a  total  cost 
of  $27.80  a  ton,  which  included  the  price  of  the  iron. 
Whereas  to  buy  iron  in  Alabama,  have  it  shipped  direct  to 
Spokane  and  pay  the  rates  demanded  by  the  railroad  com- 
bination would  make  the  cost  of  the  iron  $30.80  a  ton. 
When  this  fact  had  been  demonstrated  the  railroads  secret- 


48 


STORIES    OF    THE    GREAT    RAILROADS 


ly  made  a  rate  on  iron  of  $13  a  ton^from  Alabama  to  Spo- 
kane, the  same  as  the  rate  from  Alabama  to  Pacific  coast 
points. 

FREIGHT  RATES  TO  SPOKANE  AND  TO  THE  PA- 
CIFIC COAST,  340  MILES  FARTHER. 


Commodity 

Shipped 
From 

Rate  to 
Spokane 

Rate  to 
Coast 
a  Pacific 
Point. 

Agricultural    implements 

Chicago 

1   65 

1  25 

«                      «« 

»                      «< 
Baking  powder     

Missis- 
sippi river 
points 
New  York 
&  Boston 
Chicago 

1.45 

1.75 
1  64 

1.15 

1.25 
1  10 

Bath  tubs  sheet  steel     

3  25 

2  40 

Bath  tubs    cast  iron 

u 

2  10 

1  40 

Belting   

Eastern 

1.95 

1.10 

Belting  (less  than  car  load)... 
Belting  link  

points 

Chicago 

u 

3.13 
1  73 

1.65 
85 

Bicycles         

u 

3  70 

2  50 

Books   blank    etc  

(t 

1  79 

1  25 

Boots  and  shoes    

u 

2  90 

2  35 

Boxes    paper     

u 

1  44 

90 

Beef  extract                

«« 

2  18 

1  40 

Bolts    nuts    washers    etc.  .   . 

Pittsburg 

1  28 

80 

Canned  corn                  . 

district 
New  York 

1  43 

95 

Car   wheels    mining 

and  Ohio 
Chicago 

1  26 

85 

Canned  goods  

district 
Chicago 

1  35 

95 

Carpets    

« 

2  60 

1  75 

Coffee        .     .                     

u 

1  38 

00 

Cast-iron  stoves,  cooking,  etc.. 
Clothing 

it 
(( 

1.70 
2  35 

1.40 

1  50 

Castings,  plain  

l( 

1.45 

75 

Crockery     

(C 

1  49 

95 

Cotton  piece  goods  

New  York 

.85 

1  00 

Cottons    duck  and  denims  

Chicago 

75 

90 

j)ry  goods    calicoes    etc  

85 

1  00 

Farthenware      

« 

2  18 

1  40 

Fire  escapes    ....       

u 

70 

1  25 

Furnaces         •  

(( 

91 

1  40 

Gas  stoves         

(( 

3  77 

2  50 

Glass,  common  window  

" 

2.35 

1.50 

THE  ROMANCE  OF  THE   INLAND   EMPIRE 


Commodity 

Shipped 
From 

Rate  to 
Spokane 

Rate  to 
a  Pacific 
Coast 
Point. 

Glassware    

" 

1.80 

1.10 

Granite  ware 

« 

1  80 

1    10 

« 

2.20 

1.75 

Horse  blankets  

New  York 

3.88 

2.40 

Horseshoe  nails  .   ......    .... 

Chicago 

1.39 

.85 

Ink        

M 

1.81 

1.00 

« 

1.60 

.75 

|| 

1.23 

.75 

ft 

1.10 

.75 

Iron,  bar  (less  than  car  load). 

« 
« 

2.07 
1.23 

1.25 
.75 

Alabama 

13.00 

13.00 

Chicago 

3  20 

2  00 

M 

1.95 

1.10 

« 

2  35 

1.10 

New  York 

1  72*/2 

1  00 

« 

2.98 

1.50 

C~'hica.Qro 

2.10 

1.25 

a 

1  64 

1.10 

« 

1  79 

1.10 

New  York 

1  68 

1.40 

Nails  and  wire               

1  10 

65 

Nuts     

2  31 

1.30 

New  York 

2  45 

1.60 

Oilcloth    table  

« 

1  70 

1.00 

Chicago 

1  21 

.90 

« 

1  85 

1.00 

M 

1  78 

.85 

« 

1  19 

75 

New  York 

1  29 

75 

Paper  bags           

1  40 

1  00 

t« 

1  80 

1.20 

New  York 

2  00 

1.20 

C"hica.2ro 

1  00 

50 

Pipe   corrugated      

<t 

1  78 

1  00 

Pumps   

fhicacro 

1  95 

1  40 

Refrigerators                       

M 

2  20 

1  35 

Rubber  boots  and  shoes 

(( 

2  20 

1  35 

Rubber  clothing            .   . 

(( 

2  45 

1  60 

11 

1  95 

1  10 

Rubber  tubing  

It 

2  05 

1  20 

Seeds    

M 

1  70 

1.20 

Sewing  machines  

i< 

2  25 

1  40 

Soap,  toilet  

« 

1  23 

75 

Soda,  ash  

« 

1.00 

.50 

Spices  

«< 

2.03 

1.25 

Steel  safes  

a 

2.41 

1.75 

Steel  plates    

Pittsburg 

1.23 

.75 

district 

50 


STORIES    OF    THE    GREAT    RAILROADS 


Commodity 

Shipped 
From 

Rate  to 

Spokane 

Rate  to 
a  Pacific 
Coast 
Point. 

Steel  sheets 

•< 

1  28 

.80 

Steel    angles,    beams,   channels, 
etc  

« 

1.23 

.75 

Shafting    

« 

1.23 

.75 

Toys    

Chicago 

2.20 

1.35 

Tobacco  

K 

2.91 

1.50 

« 

3.05 

2.20 

«« 

1.44 

.90 

Typewriters         

« 

5.96 

3.00 

Underwear  and  hosiery  

New  York 

2.35 

1.50 

Wagons     

Chicago 

1.65 

1.25 

White  lead  

« 

2.20 

1.80 

« 

2.35 

1.50 

Window-curtain  poles  

« 

1.76 

.90 

Washing  machines  

« 

2.10 

1.40 

Washing  machines  ... 

New  York 

2.55 

1.40 

Window-shade  cloth  

u 

1.85 

1.00 

In  doing  this  they  nullified,  of  course,  their  contention 
that  they  could  not  afford  to  haul  freight  to  Spokane  for 
the  rate  charged  to  the  Pacific  coast  (340  miles  farther), 
but  that  contention  was  from  the  beginning  so  manifestly 
ludicrous  that  it  could  always  be  nullified  without  difficulty. 

Of  course  the  natural  query  that  arose  was  why,  if  the 
railroads  could  make  the  rate  on  pig  iron  the  same  to  Spo- 
kane and  to  the  Pacific  coast  (340  miles  farther)  they  could 
not  make  a  similar  rate  on  other  things.  To  this  question 
no  answer  has  ever  been  returned.  But  that  is  one  of  the 
good  things  about  running  a  railroad.  You  do  not  have 
to  answer  questions.  There  is  no  power  on  earth  to  com- 
pel you  to  answer  them;  the  Supreme  Court  of  the  United 
States  has  so  decided. 


THE  ROMANCE  OF  THE  INLAND  EMPIRE  51 

SAMPLE  RATES  FROM  THE  TARIFF  SHEETS  PREPARED  FOR  MR. 
HILL'S  DOMAIN. 

ON  LUMBER. 

From  Portland,  Seattle,  etc.,  to  Spokane $0.20 

From  Spokane  to  Portland,  Seattle,  etc 26 

Portland  to  St.  Paul,  Minneapolis  &  Duluth,  about  2,050  miles.     .40 
Spokane  to  St.  Paul,  Minneapolis  &  Duluth,  1,500  to  1,700  miles    .40 

Portland  to  Lewiston,  687  miles 20 

Spokane  to  Lewiston,   147  miles 13 

Lumber  is  hauled  eastward  from  Portland  687  miles  for 
twenty  cents ;  it  is  hauled  eastward  from  Spokane  only  385 
miles  for  twenty  cents.  Eastward  from  Seattle  it  is  hauled 
348  miles  for  twenty  cents;  eastward  from  Spokane  it  is 
hauled  only  216  miles  for  twenty  cents. 

MISCELLANEOUS. 

Wallace,  Idaho,  is  102  miles  east  of  Spokane. 

Rate  on  bar  iron,  Pittsburg  to  Spokane $1.23 

Local  rate,  Spokane  to  Wallace... 45 

Total    $L68 

Rate  on  bar  iron,  Pittsburg  to  Portland „ $0.75 

Local  rate,  Portland  to  Wallace 82 

Total  $L57 

The  haul  is  350  miles  farther  than  if  shipped  by  way  of 
Spokane.  Can  you  beat  this? 

The  local  from  Spokane  to  Wallace,  102  miles,  is  forty- 
five  cents;  the  local  from  Portland  to  Wallace,  452  miles, 
is  eighty-two  cents. 

This  is  the  way  Mr.  Hill  develops  the  Northwest  and 
brings  prosperity  and  plenty  to  the  Inland  Empire.  Let 
us  hope  that  the  inhabitants  of  "Mr.  Hill's  domain"  will 
not  continue  to  be  restless  under  these  conditions  nor  show 
indifference  to  the  favors  bestowed  upon  them.  Let  them  be 
calm  and  remember  how  Mr.  Hill,  as  Mr.  Higginson  has  so 


52  STORIES    OF   THE    GREAT    RAILROADS 

kindly  reminded  them,  has  improved  their  live  stock  and 
taught  them  how  to  farm.  And  shall  such  good  deeds  be 
without  reward? 

What  actual  effect  did  these  rates  have  upon  manufac- 
turing and  business  in  Spokane? 

Good  question.  Let  us  see.  Here  is  one  concrete  illus- 
tration: The  Pacific  Coast  Pipe  Company  was  organized 
at  Spokane  in  the  spring  of  1900  and  began  to  manufac- 
ture bored  wooden  pipe  for  water  conductors  and  the  like 
purposes.  There  was  only  one  other  such  manufactory  in 
"Mr.  Hill's  domain"  and  that  was  at  Seattle.  The  rate  on 
manufactured  pipes  was  then  forty-six  cents  a  hundred 
pounds  from  Seattle  to  Spokane,  plus  the  local  rate  from 
Spokane  to  any  Eastern  point  if  the  shipment  went  beyond 
Spokane.  This  put  the  Spokane  factory  and  the  Seattle 
factory  on  something  like  an  equal  footing  and  the  Spo- 
kane factory  did  well.  After  a  time  the  Seattle  factory, 
feeling  the  competition,  called  the  attention  of  the  rail- 
roads to  this  condition  and  the  railroads  immediately  put 
manufactured  wooden  pipe  under  the  classification  of  lum- 
ber. This  reduced  the  rate  from  Seattle  to  Spokane  from 
forty-six  cents  to  twenty  cents  a  hundredweight. 

From  the  first  the  Spokane  factory  had  been  compelled 
(by  reason  of  the  railroad  rates)  to  pay  fifty  cents  more  a 
hundredweight  for  the  wire  it  used  and  twenty  cents  a 
hundred  more  for  its  raw  material  and  had  still  managed 
to  keep  alive.  It  was  now  suddenly  confronted  with  the 
fact  that  because  of  the  change  in  classification  the  Seattle 
factory  was  able  to  sell  pipe  in  Spokane  for  about  half  of 
the  Spokane  factory's  price.  The  first  intimation  of  this 
fact  was  the  sudden  discovery  that  the  Seattle  factory  had 
far  underbidden  the  Spokane  factory  on  a  contract  In  Spo- 
kane itself.  The  Spokane  factory  perceived  the  hopeless- 
ness of  the  situation  and  moved  to  a  suburb  of  Seattle, 


THE  ROMANCE  OF  THE   INLAND  EMPIRE  53 

That  is  why,  in  spite  of  magnificent  water  power,  manu- 
facturing languishes  in  Spokane, 

Spokane  is  abundantly  supplied  with  pine  and  cedar  lum- 
ber adapted  for  many  purposes,  but  particularly  window 
sash.  With  this  advantage,  and  the  water  power,  Spo- 
kane should  be  making  windows  for  all  the  towns  in  "Mr. 
Hill's  domain."  As  a  matter  of  fact,  it  makes  them  for 
only  the  local  trade,  and  not  even  for  all  of  that.  Railroad 
rates  enable  the  coast  factories  to  overwhelm  the  trade  in 
the  Inland  Empire.  Thus  the  rate  on  window  glass  from 
Pittsburg  to  Spokane  is  $1.38^  a  hundredweight.  This 
kills  the  Spokane  manufacturer. 

A  great  lumber  and  manufacturing  company  from  the 
East  planned  to  build  a  $75,000  sash  factory  in  Spokane  if 
it  could  get  the  same  rate  on  glass  that  was  paid  to  Seat- 
tle (340  miles  farther).  No  such  concession  could  be  ob- 
tained from  the  railroads  in  "Mr.  Hill's  domain"  and  the 
lumber  company  moved  to  another  region.  The  railroads 
allow  the  Pacific  coast  cities  to  ship  sash  at  lumber  rates. 
This  enables  the  coast  manufacturers  to  lay  down  manu- 
factured sash  in  Spokane  for  freight  charges  of  $1.10 
against  a  rate  of  $1.38*/2  charged  to  Spokane  for  the  glass 
alone.  The  only  thing  that  has  kept  the  Spokane  factories 
alive  is  the  local  demand  for  special  sizes  in  sash.  The 
coast  factories  supply  only  regular  sizes. 

"Above  all,  the  highways  of  the  nation  must  be  kept 
open  to  all  upon  equal  terms,"  roared  President  Theodore 
Roosevelt  in  his  annual  message  of  1904.  The  people  of 
the  Inland  Empire  like  to  recall  those  words:  in  the  light 
of  their  experience  with  the  highways  of  the  nation  (and 
the  highwaymen)  they  find  the  irony  quite  piquant.  Be- 
cause, by  means  of  the  methods  I  have  described,  the  four 
railroads  take  from  the  city  of  Spokane  every  year  at  least 
a  million  dollars  in  excessive  freight  charges. 


54  STORIES    OF    THE    GREAT    RAILROADS 

Singularly  enough  the  railroad  that  has  seemed  to  be 
most  active  and  zealous  in  defeating  the  efforts  of  the  citi- 
zens to  secure  relief  is  the  Great  Northern — once  hailed  by 
them  as  their  savior  and  friend. 

In  the  course  of  the  pleas  of  the  Great  Northern  much 
is  made  of  the  capitalization  of  the  railroad  and  the  impos- 
sibility of  granting  any  rate  concessions  and  paying  inter- 
est on  that  capitalization.  It  appears  that  the  capital  stock 
of  the  Great  Northern  is  $210,000,000  and  that  there  is  a 
funded  indebtedness  (bonds)  of  $126,397,909,  making  a 
total  capitalization  of  $336,397,909.  It  is  for  the  sake  of 
maintaining  interest  and  dividends  on  this  capitalization  that 
the  rates  are  defended.  I  purpose  in  my  next  chapter  to 
show  just  what  that  capitalization  means  and  where  it 
came  from.  And  I  shall  show  it  in  a  way  not  before  shown 
to  you.  And  I  think  you  will  be  astonished  with  the 
showing. 

As  for  example,  in  passing :  What  is  the  total  capitaliza- 
tion of  the  Great  Northern  railroad  on  which  we  must 
keep  up  the  rates  to  provide  interest  and  dividends?  $336,- 
396,909.  And  how  much  have  Mr.  Hill  and  his  friends 
drawn  from  the  enterprise,  exclusive  of  interest,  dividends, 
and  the  like  emoluments?  $407,000,000.  And  how  much 
did  they  invest  in  the  enterprise?  Not  a  cent.  How  does 
that  appeal  to  you  as  a  really  interesting  fact  ? 

So  stands  this  most  remarkable  story  of  the  railroads 
and  the  Inland  Empire.  And  yet  even  now  you  have  not 
all  of  it.  Still  more  significant  than  anything  I  have  told 
here  is  the  marked  hesitation  that  has  been  displayed  in 
dealing  with  the  case. 

The  whole  situation  has  been  laid  bare  before  the  Inter- 
state Commerce  Committee  of  the  United  States  Senate  and 
the  Committee,  realizing  what  was  involved,  persistently 
dodged  any  decision.  Writers  have  offered  it  to  magazines 
and  newspapers  and  the  astute  editors  have  perceived  what 


THE   ROMANCE  OF  THE   INLAND   EMPIRE  55 

impended  therein  and  steered  away  from  such  a  vortex. 
Efforts  have  been  made  to  interest  in  the  case  various  pub- 
lic men  and  they  have  fled  incontinently  from  the  thought. 

There  was  too  much  involved;  the  thing  was  too  tre- 
mendous; it  meant  too  much. 

The  whole  American  system  of  railroad  rate  making  was 
fatally  attacked  in  that  one  case. 

In  a  decision  made  public  on  March  3,  1909,  the  Interstate 
Commerce  Commission  upheld  the  position  taken  in  these 
pages  and  the  plaint  of  the  wronged  people  of  Spokane 
by  declaring  the  rates  I  have  given  here  to  be  "unjust  and 
unreasonable"  and  ordering  the  railroads  to  reduce  such 
rates  (in  the  great  majority  of  instances  adduced  in  the 
test  case)  to  the  basis  of  the  rates  to  Seattle. 

Three  years  later  that  ruling  was  still  ineffective;  one 
court  after  another  had  taken  a  hand  at  blocking  it;  the 
railroads,  including  those  managed  by  the  paternal  Mr. 
Hill,  were  still  engaged  in  levying  the  forbidden  toll  upon 
"his  domain";  and  the  people  of  Spokane  were  holding  in- 
dignation meetings  and  raising  public  subscriptions  to  pro- 
test at  the  delay. 

That  is  one  reason  why  this  story  is  of  vital  interest  to 
us  now.  The  analysis  of  the  Spokane  rates  and  the  frus- 
trated hopes  of  the  plundered  Spokane  people  lead  to  the 
same  great  lesson,  which  is  that  the  railroads  of  the  United 
States  are  a  power  superior  to  the  government,  that  they 
levy  and  collect  from  every  community  whatever  toll  they 
please  and  that  every  attempt  to  restrain  them  or  control 
them  ends  in  the  same  ridiculous  failure. 

But  suppose  this  long  drawn  out  case  to  be  settled;  sup- 
pose by  a  stretch  of  the  imagination  that  the  railroads  could 
be  brought  to  obey  the  ruling  of  the  Interstate  Commerce 
Commission. 

Who  or  what  is  to  compensate  the  people  of  the  Spokane 
country  for  the  huge  injury  these  rates  have  inflicted  upon 


56          STORIES  OF  THE  GREAT  RAILROADS 

them  all  these  years?  Who  is  to  assure  them  that  upon 
some  other  excuse  equally  "unjust  and  unreasonable"  they 
shall  not  again,  perhaps  tomorrow,  be  subjected  to  a  sim- 
ilar injury? 

Who  is  to  make  any  such  assurance  to  hundreds  of  other 
American  communities  ? 

For  is  the  Spokane  region  the  only  one  to  which  rates 
are  made  in  this  manner? 

Not  by  many.  The  basic  principle  employed  in  this  case 
of  such  charges  as  the  traffic  will  bear  is  the  universal  rule. 

Meantime  you  and  I,  we  pay  the  extortionate  rates  in 
everything  we  buy,  and  meantime  these  same  extortionate 
rates  pile  up  to  make  the  fortunes  that  are  produced  from 
an  investment  of  nothing. 

In  other  words,  the  money  mill  that  we  have  described 
here  keeps  on  grinding  beyond  any  present  power  to  stop 
or  control  it,  our  labor  is  thrown  into  the  hopper  and  our 
dollars  are  the  grist,  cheerfully  borne  away  by  combina- 
tions like  that  of  the  four  Canadians. 

And  thus  do -we  develop  the  Northwest — also  other  re- 
gions. Brethren,  how  would  it  do  to  still  for  a  time  the 
resounding  platitude  concerning  wealth  "honestly  acquired," 
and  the  trite  old  formulas  about  the  romance  of  the  rail- 
road, and  come  down  to  contemplate  facts  as  they  are? 


CHAPTER  III. 

THE   GREATEST    MELON    PATCH    IN   THE   WORLD. 

Now  and  then,  at  rare  intervals,  an  American  commu- 
nity, oppressed  in  the  manner  of  the  Inland  Empire,  wearies 
of  the  oppression  and  ventures  upon  revolt. 

That  makes  a  story  even  more  interesting  than  the  op- 
pression itself — possibly  for  the  sake  of  the  novelty. 

Patience  is  the  badge  of  all  our  tribe.  It  is  one  of  the 
cardinal  virtues  much  extolled  by  the  old  writers.  There- 
fore, with  some  touch  of  patriotic  pride,  I  believe  we  are 
accustomed  to  refer  to  the  marvelous  and  perdurable 
American  patience  that  makes  Job  under  his  boils  seem  by 
comparison  but  an  irascible  neurotic.  Very  likely,  too,  our 
virtue  is  the  more  admirable  in  us  that  we  can  at  any  time 
end  our  troubles ;  for  this  brings  our  endurance  to  the  level 
of  voluntary  sacrifice  and  self-immolation,  a  merit  not  to 
be  overlooked. 

That  is  one  reason  why  I  wish  to  tell  in  detail  the  story 
of  the  revolt  of  Spokane  before  the  Interstate  Commerce 
Commission. 

Now,  this  grand  old  body  has  existed  for  twenty-five 
years,  most  of  the  time  in  a  state  of  coma. 

In  former  days  it  roused  but  seldom,  making  at  long 
intervals  a  noise  like  one  awake  and  then  relapsing  into 
sweet  repose. 

This  is  not  so  important  as  you  might  think,  because 
even  when  it  did  wake  up,  the  courts  nullified  its  actions, 
so  it  might  as  well  have  been  asleep  as  awake. 

Latterly,  because  of  the  appearance  of  a  restless  and 
aweless  disposition  on  the  part  of  the  public,  it  has  in- 
sisted upon  trying  to  do  things,  courts  or  no  courts. 

57 


58  STORIES    OF    THE    GREAT    RAILROADS 

One  of  its  seasons  of  dangerous  activity  was  when  it 
heard  the  case  of  the  Inland  Empire. 

The  reason  it  woke  up  then  was  because  the  case  devel- 
oped such  extraordinary  features  and  was  the  occasion  of 
such  an  amazing  revelation,  beyond  all  precedent  in  railroad 
history,  that  even  a  Government  commission  under  a  law 
designed  to  produce  atrophy  was  obliged  to  give  heed 
thereto. 

This  is  news  to  you.  Although  in  a  thousand  ways  it  is 
of  very  great  importance,  so  great  that  no  presidential  cam- 
paign nor  change  of  administration  nor  succession  to  the 
speakership  could  mean  so  much,  very  little  of  it  has  been 
reported  in  your  daily  newspaper,  scarcely  any  of  it  has 
been  sent  out  by  the  Associated  Press.  You  might  profitably 
put  in  a  few  hours  asking  why  not.  Only  I  know  you  will 
do  nothing  of  the  kind.  You  never  do. 

The  cause  of  the  Inland  Empire  against  the  railroads 
that  had  so  long  throttled  and  despoiled  it  was  undertaken 
by  the  revolting  citizens  of  Spokane.  "Before  the  Inter- 
state Commerce  Commission,  the  City  of  Spokane,  Spo- 
kane Chamber  of  Commerce,  Spokane  Jobbers'  Association 
and  the  County  of  Spokane  versus  the  Northern  Pacific 
Railway  Company,  Great  Northern  Railway  Company,  the 
Union  Pacific  Railroad  Company,  Oregon  Railroad  and 
Navigation  Company,  Spokane  Falls  &  Northern  Railway 
Company."  So  the  case  was  termed.  It  turned  on  the  con- 
ditions related  in  the  foregoing  chapter.  That  is,  the  rail- 
roads had  for  years  oppressed  the  Spokane  region  by  mak- 
ing the  freight  rate  from  the  East  to  Spokane  equal  to  the 
rate  from  the  East  to  the  Pacific  coast  (340  miles  farther) 
plus  the  rate  back  from  the  Pacific  Coast  to  Spokane. 

This  the  wearied  citizens  said  was  unjust  and  unfair. 

In  its  final  form  that  has  special  interest  for  us,  the  case 
came  to  a  first  hearing  in  June,  1906.  Naturally,  the  de- 
fendant railroads  combined,  and  having  at  issue  the  vital 


THE    GREATEST    MELON    PATCH    IN    THE    WORLD  59 

question  whether  they  can  at  all  times  in  their  own  domain 
make  such  rates  as  they  see  fit  to  make,  they  were  repre- 
sented by  able,  learned,  skillful,  adroit,  experienced  corpora- 
tion lawyers.  You  know  what  that  means. 

Of  the  counsel  for  the  revolting  serfs  of  the  Inland  Em- 
pire, there  were  also  very  able  men,  Mr.  H.  M.  Stephens, 
Mr.  J.  M.  Geraghty,  Mr.  A.  M.  Winston,  Mr.  R.  M.  Barn- 
hart  of  Spokane,  and  Mr.  Brooks  Adams  o-f  Boston. 

Much  of  Mr.  Brooks  Adams'  life  has  been  spent  in  studies 
of  the  railroad  problem.  He  has  convictions  on  the  sub- 
ject. I  am  told  that  because  of  his  convictions  he  served 
without  compensation  in  the  Spokane  case.  I  do  not  know 
how  this  is  and  admit  that  it  seems  too  good  to  be  true. 
Yet  it  may  be.  Mr.  Adams  comes  of  that  kind  of  a  fam- 
ily. He  is  a  grandson  of  John  Quincy  Adams  and  a  son 
of  that  Charles  Francis  Adams  whose  services  as  Min- 
ister to  England  in  our  Civil  War  were  so  monumental. 

When  the  hearings  came  on,  the  railroads  defended  their 
rates  to  Spokane  on  two  chief  grounds. 

First,  there  was  the  phantom  ship  seen  at  long  intervals 
off  Cape  Horn.  That  is  to  say,  they  pleaded  water  com- 
petition. Sometimes  a  man  could  ship  something  by  wa- 
ter from  New  York  to  San  Francisco.  Therefore  they 
had  a  right  to  gouge  what  they  pleased  out  of  Spokane. 

Second,  they  said  that  the  value  and  capitalization  of  the 
railroads  were  such  that  if  rates  to  the  Spokane  region 
were  reduced  the  railroads  would  not  be  able  to  earn  a 
just  and  reasonable  profit;  such  a  profit  as  the  courts  had 
decided  a  railroad  was  entitled  to  make. 

Kindly  note  that  this  was  on  the  basis  of  the  value  and 
capitalization  of  the  roads. 

'These  defendants,  in  order  to  show  the  reasonableness 
of  the  total  revenues  drawn  by  them  from  the  public,  valued 
the  entire  property  employed  by  the  corporations  in  the 
public  service,  and  then,  deducting  the  cost  of  operation, 


60  STORIES    OF    THE    GREAT    RAILROADS 

taxes  and  depreciation  from  their  receipts,  calculated  the 
balance  as  a  species  of  rental  upon  the  sum  total  which  their 
schedules  showed."1 

This  plea  struck  squarely  into  Mr.  Adams'  convictions. 
I  suppose  it  must  have  seemed  to  him  basic  and  vital  to 
the  whole  vast  national  transportation  problem.  Anyway, 
he  advised  that  the  dear  old  Cape  Horn  hooker  be  allowed 
to  beat  and  bang  her  stormy  way  and  the  issue  be  joined 
on  this  great  point  of  value  and  capitalization. 

As  applied  to  this  particular  case  the  issue  meant  wheth- 
er the  railroads  could  afford  to  loosen  their  grasp  on  Spo- 
kane's throat;  but  the  total  question  involved  was  almost 
infinitely  greater  than  that. 

Facts  as  to  the  existing  rate  discriminations  and  the  ef- 
fect thereof  were  amply  testified  to.  The  railroads  sub- 
mitted much  testimony  as  to  value  and  capital.  We  may 
learn  with  gratification  that  conspicuous  in  the  vanguard 
of  the  forces  fighting  for  the  right  to  charge  at  will  was  our 
old  friend,  the  Great  Northern.  The  broken-backed  St. 
Paul  &  Pacific,  of  which  Jesse  P.  Farley  had  been  ap- 
pointed receiver  in  1873 ;  the  remade  St.  Paul  &  Pacific  that 
in  1879  Mr.  Hill  and  his  friends  had  for  a  merry  song 
secured  from  the  Dutch  bondholders;  the  St.  Paul,  Minne- 
apolis &  Manitoba  mint  that  American  generosity  had  con- 
ferred on  the  Canadian  brotherhood;  the  money-making 
machine  from  which  had  come  so  huge  a  fortune — behold 
it  now  neatly  disguised  and  come  to  court  on  this  pleasant 
occasion,  protesting  that  on  any  reduction  of  its  rates  to 
Spokane  it  would  be  unable  to  earn  "a  just  and  reasonable 
income"  on  its  value  and  capital. 

What  was  its  capital  at  that  time  ? 

According  to  the  company's  statement,  $250,120,989.39. 


1  No.  870  Interstate  Commerce  Commission,  City  of  Spokane  et 
al.  versus  Northern  Pacific  Railway  et  al.  Supplemental  brief  for 
complainants,  page  1.  Brooks  Adams  of  Counsel  for  Complainants. 


THE   GREATEST    MELON    PATCH    IN    THE    WORLD  61 

And  what  was  the  value  of  the  property? 

An  expert  summoned  by  the  railroad  put  the  value  at 
$415,000,000.  On  this  the  annual  income,  after  the  neces- 
sary deductions  for  depreciation,  left  for  profit  no  more 
than  a  pitiable  3.65  per  cent.  Could  the  Commission  have 
the  heart  to  reduce  the  revenue  of  an  enterprise  that  was 
making  only  3.65  per  cent?  Think  of  the  widows  and 
orphans ! 

All  this  was  very  ably  supported.  Detailed  estimates  were 
submitted  showing  the  cost  of  construction;  bridges,  tres- 
tles, ties,  and  spikes  were  considered;  labor  and  the  cost 
of  transporting  it.  Some  very  ugly  discrepancies  between 
different  testimonies  at  different  times  were  neatly  skated 
over;  also  some  highly  suggestive  facts  about  the  methods 
of  bookkeeping;  and  a  total  reproduction  cost  of  $62,570 
a  mile  was  shown. 

So  now  we  go  back  to  Receiver  Farley  and  recall  that  he 
built  and  equipped  112  miles  of  this  railroad  at  an  average 
of  $9,500  a  mile.  How  does  that  agree  with  the  testi- 
mony? I  do  not  know.  But  it  is  not  the  only  difficulty. 
The  State  Railroad  Commission  of  South  Dakota  found 
that  many  miles  of  railroad  in  that  State  had  been  built  for 
$8,000  a  mile  and  even  less.  In  hunting  over  the  records 
of  this  case  I  have  found  many  instances  where  railroads 
have  been  built  and  equipped  for  $12,000  a  mile.  Accord- 
ing to  repeated  assertion  and  even  sworn  testimony  in  other 
cases  the  Great  Northern  was  cheaply  built ;  its  grades  were 
lower  than  those  of  any  other  transcontinental  line. 

I  do  not  pretend  to  explain  the  discrepancy.  But  I  know 
that  discrepancies  are  no  novelty  in  railroad  testimony,  and 
if  you  could  get  an  Interstate  Commerce  Commissioner  to 
tell  what  he  has  heard  from  the  witness  stand  you  would  be 
amazed. 

Next,  terminals,  stations,  gifts  of  public  lands,  right  of 
way,  and  other  possessions  were  put  in  at  startling  figures, 


62  STORIES    OF    THE    GREAT    RAILROADS 

including,  if  you  will  believe  me,  the  right  of  way  and 
other  donations  bestowed  by  the  people  of  Spokane.  That 
their  presents,  secured  and  given  with  such  a  pathetic  out- 
burst of  public  feeling,  should  now  be  used  as  a  club  against 
them  must  have  struck  many  Spokane  citizens  into  cynical 
laughter.  And  upon  all  this  value  so  heaped  up  Mr.  Hill's 
Company  desired  to  obtain  "a  just  and  reasonable  profit" 
by  making  such  rates  as  it  might  be  pleased  to  make. 

Included  in  the  lands  thus  valued  were  certain  areas  that 
had  been  taken  away  from  the  Indians  that  the  Govern- 
ment might  bestow  more  riches  upon  the  railroad.  I  do 
not  know  of  any  fact  better  worth  the  philosopher's  atten- 
tion— or  the  patriot's  either,  supposing  such  there  be.  For 
how  do  you  imagine  any  such  gift  was  brought  about  ? 

Tables  were  presented  by  the  railroad  company  showing 
the  losses  it  would  suffer  if  the  Spokane  rates  should  be 
reduced.  These  tables  were  ably  prepared  and  calculated 
to  convince  any  person  not  initiated  about  such  manipula- 
tions. Much  testimony  was  heard  on  the  railroad  side. 
Some  of  it  was  erroneous,  and  erroneous  in  a  very  aston- 
ishing way;  but  we  need  not  bother  about  that;  as  before 
observed  it  is  no  novelty  in  such  hearings.  Altogether  the 
case  was  very  strong;  no  doubt  it  was  the  strongest  for 
the  railroads  ever  made  in  this  country. 

This  was  the  difficulty  that  confronted  Mr.  Adams.  He 
felt  perfectly  certain  that  the  showing  made  for  the  rail- 
road company  was  wrong ;  all  his  investigations  and  studies 
in  the  railroad  problem  taught  him  it  was  wrong.  Some- 
where in  the  company's  argument  existed  a  fatal  flaw,  but 
no  one  had  ever  demonstrated  the  flaw.  Universal  custom 
had  decreed  the  taking  of  a  railroad  company's  statement 
at  its  face  value.  Thoughtful  men  knew  well  enough  that 
the  face  value  was  usually  fictitious  and  that  the  whole 
American  railroad  business  was  rotten  with  fraud  and  lying. 


THE   GREATEST    MELON    PATCH    IN    THE    WORLD  63 

But  no  one  had  ever  analyzed  and  destroyed  an  ably  struc- 
tured statement  such  as  this. 

Mr.  Adams  now  brought  into  the  case  Mr.  Frederick  O. 
Downes,  a  Boston  attorney  with  an  extraordinary  gift  for 
financial  analysis  and  research,  in  which  he  had  long  been 
engaged  with  great  insurance  companies.  Mr.  Downes  in- 
serted his  probe  at  the  beginning  of  Mr.  Hill's  railroad  ca- 
reer and  for  many  weeks  patiently  followed  its  trail  down 
to  the  day  of  the  hearing. 

What  he  discovered  is  to  the  outsider  the  most  amazing 
and  significant  revelation  ever  made  about  the  American 
railroad. 

Mr.  Downes  put  his  finger  directly  upon  the  chief  nerve 
in  the  railroad  problem.  For  the  first  time  he  revealed  the 
real  nature  of  the  railroad  business  as  conducted  in  our 
broad,  happy  land. 

You  have  always  believed  that  business  to  be  the  carrying 
of  freight  and  passengers.  To  the  real  purpose  of  a  mod- 
ern railroad,  freight  and  passenger  traffic  is  but  a  necessary 
blind.  The  real  business  is  to  issue,  to  manipulate,  and  to 
possess  railroad  securities. 

Other  persons  have  asserted  this ;  Mr.  Downes  proved  it. 
He  did  his  work  thoroughly  and  finally.  Henceforth  we 
shall  not  be  able  to  utter  very  successfully  the  sonorous 
platitude  and  the  familiar  formula  when  dealing  with  the 
railroad  problem.  Mr.  Downes  brought  things  from  aerial 
flight  to  plain  cold  earth. 

Let  us  see  how,  for  now  we  stand  at  the  center  of  the 
whole  subject.  Here  is  one  reason  why  you  pay  too  much 
for  everything  you  buy;  here  is  why  your  cost  of  living 
goes  up  while  your  wages  are  stationary;  here  is  why  rail- 
road travel  in  the  United  States  is  so  notoriously  unsafe; 
here  is  why  we  have  grade  crossings  and  single  tracks,  why 
they  kill  and  maim  so  many  persons;  why  the  New  York 
Central  is  able  to  maintain  Death  Avenue  in  the  heart  of 


64  STORIES    OF    THE    GREAT    RAILROADS 

the  metropolis  of  the  nation,  why  the  railroads  have  desired 
and  have  been  able  to  debauch  legislatures,  to  corrupt  poli- 
ticians, to  maintain  bosses,  and  to  own  newspapers ;  here  is 
why  they  are  able  to  defeat  or  to  nullify  every  attempt  to 
restrain  them,  why  the  Interstate  Commerce  Law  is  a  joke, 
the  Elkins  Bill  a  farce,  the  Hepburn  Bill  a  pleasantry,  the 
Commerce  Court  a  barricade.  Here  is  why  the  railroads 
hire  writers  and  manipulate  magazines  and  own  editors. 
It  is  all  here,  the  grand  story;  miss  not  a  word,  because 
herein  lies  not  only  what  affects  day  by  day  your  pocket- 
book  and  your  comfort,  but  what  affects  your  country  as 
a  republic  and  your  position  therein  as  a  free  citizen. 

We  return  to  the  days  of  Mr.  Receiver  Farley  and  the 
compact  that  he  swore  he  made  with  the  four  Canadians  to 
secure  the  old  St.  Paul  &  Pacific. 

Mr.  Farley  was  the  receiver,  trustee  and  guardian  of  that 
property.  He  swore  that  largely  because  of  his  assistance 
the  four  Canadians  were  enabled  to  obtain  it  from  the 
Dutch  bondholders.  They  got  it  without  expending  a  cent 
of  their  own  for  it  and  issued  upon  it  $8,000,000  of  new 
bonds  with  which  they  paid  the  purchase  price.  How  much 
was  that?  As  told  in  the  first  chapter,  $4,380,000.  That 
would  leave  the  syndicate  $3,420,000  (after  other  expenses) 
as  net  profit  on  the  bond  deal.  As  a  matter  of  fact  the  real 
profit  was  doubtless  larger2  and  probably  approximated 


2  See  Steenerson  versus  Great  Northern  Railway  Company  69 
Minnesota,  372,  wherein  Judge  Canty  says  in  his  opinion : 

"Of  the  lines  of  railroad  here  in  question,  565  miles  were  built 
for  and  owned  by  other  railroad  companies  prior  to  the  fore- 
closure sales  of  1879.  At  one  of  these  sales  the  promoters  of  the 
St.  Paul,  Minneapolis  &  Manitoba  Railway  Company  bid  off  a  part 
of  the  property;  [for  $1,500,000,  as  shown  in  the  court  records  at 
St.  Paul]  and  the  company  itself,  after  it  was  organized,  bid  in 
the  rest  of  said  property.  These  properties,  the  franchise  connected 
with  the  same,  and  a  large  land  grant,  earned  and  to  be  earned, 
were  bid  off  for  the  aggregate  sum  of  $3,600,000,  subject  to  a 
prior  lien  of  $486,000.  The  promoters  transferred  to  the.  new  com- 
pany the  part  bid  in  by  them,  and  the  properties  were  immediately 
bonded  by  the  new  company  for  $16.000,000  and  it  issued  to  the 
promoters  its  stock  to  the  amount  of  $15,000,000." 


THE   GREATEST    MELON    PATCH    IN    THE    WORLD  65 

$4,000,000.  Besides  which  the  syndicate  had  secured  565 
miles  of  completed  railroad  and  2,580,606  acres  of  fertile 
land.  No  wonder  Mr.  Farley  sued  and  some  of  the  bond- 
holders cried  aloud  in  agony. 

Mr.  Hill  and  his  associates  next  proceeded  to  issue  the 
$15,000,000  of  stock  which  they  divided  among  themselves, 
and  $8,000,000  of  second-mortgage  bonds. 

We  have  therefore  at  the  start  of  these  operations  $31,- 
000,000  of  new  capitalization,  of  which  $15,000,000  went 
straight  to  Mr.  Hill  and  his  associates  without  the  payment 
of  a  cent  therefor.  Of  the  remaining  $16,000,000,  being 
two  issues  of  bonds,  the  first  issue,  $8,000,000,  was  paid  for 
out  of  the  lands  granted  from  the  public  domain  by  the  Con- 
gress of  the  United  States ;  and  as  for  the  second  $8,000,000 
issued  ostensibly  for  improvements  and  extensions,  there  is 
no  record  of  how  much,  if  any,  of  the  proceeds  was  per- 
manently invested  in  the  railroad. 

The  first  balance  sheet  of  the  company,  June  30,  1880, 
showed  discrepancies  of  $550,955  in  the  assets  and  of  $992,- 
367  in  the  liabilities. 

I  make  bold  to  beg  for  what  follows  the  honor  of  your 
close  attention  through  all  its  details,  because  it  is  essential 
to  a  clear  understanding  of  the  most  important  question 
with  which  this  generation  will  have  to  deal. 

In  the  dialect  of  Wall  Street  the  dividing  of  a  good  thing 
by  the  insiders  is  called  "cutting  a  watermelon." 

Here  then  were  the  first  watermelons  from  what  was  to 
be  the  most  prolific  garden  of  the  kind  in  the  world :  Spec- 
imen No.  1,  about  $4,000,000  profit  on  the  first  mortgage 
bonds;  No.  2,  the  railroad  and  the  land  grants;  No.  3,  $15,- 
000,000  of  stock.  All  from  an  investment  of  nothing. 

And  leaving  still  to  be  considered  the  unascertained  prof- 
its on  the  second-mortgage  bonds. 

I  doubt  if  imagination  has  conceived  anything  more  ro- 
mantic. 


66  STORIES    OF    THE    GREAT    RAILROADS 

But — and  here  is  the  great  point  not  to  be  overlooked— 
these  operations  had  placed  on  the  road  a  capitalization  ol 
$31,000,000  of  which  only  $8,000,000  was  anybody's  mon- 
ey risked  in  the  venture,  while  at  least  $19,000,000  of  it  re- 
posed with  the  promoters  and  their  associates,  chief  among 
whom  were  the  four  Canadians,  James  J.  Hill,  George 
Stephen,  now  Lord  Mount  Stephen ;  Donald  A  Smith,  now 
Lord  Strathcona;  and  Norman  W.  Kittson,  deceased.  On 
this,  as  upon  the  rest  of  the  capitalization,  the  property  was 
thenceforth  to  furnish  dividends  and  interest  obtained  from 
the  public ;  you  and  me. 

On  June  8,  1882,  this  sum  was  increased  by  the  issue  of 
$5,000,000  of  additional  stock  at  par  to  the  stockholders, 
The  market  price  was  140.  Value,  $7,000,000;  price,  $5,- 
000,000.  Melon  No.  4,  $2,000,000 ;  capital  stock  now  $36,- 
000,000;  total  of  melons  to  date,  $21,000,000. 

On  April  13,  1883,  there  came  to  the  syndicate  melon 
No.  5,  a  choice,  luscious,  early  spring  variety.  The  com- 
pany issued  $10,000,000  of  six  per  cent  bonds— to  the 
stockholders  at  ten  cents  on  the  dollar.  Size  of  melon, 
$9,000,000. 

This  was  indeed  precious  fruitage.  It  brought  the  capi- 
talization to  $46,000,000,  the  total  in  melons  to  Mr.  Hill  and 
his  associates  to  $30,000,000,  and  added  to  the  interest 
charges  that  the  public  must  pay  $600,000  a  year. 

No  wonder  the  people  of  the  Spokane  region  felt  elated 
when  years  afterwards  they  learned  of  this  delightful  fact. 
They  could  see  where  some  of  their  money  had  gone,  and. 
surely  nothing  in  the  world  is  pleasanter,  or,  I  may  add, 
more  rare. 

At  the  close  of  1884  the  total  capitalization  was  $51,- 
368,000,  and  millions  had  been  charged  off  into  operating 
expenses  or  the  purchase  of  securities  or  in  extensions  and 
improvements.  Three  years  later  the  capitalization  was 


THE   GREATEST    MELON    PATCH    IN    THE    WORLD  67 

$66,298,977,  and  $3,400,000  of  the  earnings  had  been  quiet- 
ly set  aside  to  fructify  the  melons  of  the  future.3 

The  garden  produce  of  the  next  year,  1888,  came  to  table 
amid  loud  applause.  President  Hill  announced  the  issue  of 
$8,000,000  of  collateral  trust  five  per  cent  bonds  to  be  se- 
cured by  the  deposit  of  $11,750,000  of  the  securities  of  other 
railroads  acquired  by  the  company — principally  out  of  sur- 
plus earnings.  In  other  words,  these  were  "stock  bonds," 
an  excellent  device  to  conceal  stock  watering.  The  whole 
issue  went  to  Mr.  Hill  and  his  associates  at  seventy-five 
cents  on  the  dollar.  Market  value,  par;  melon,  $2,000,000; 
added  capitalization,  $8,000,000;  additional  interest  charge 
for  the  public,  $400,000  a  year.  Why  should  the  spirit  of 
mortal  be  proud?  Total  capitalization  to  date,  $80,985,000; 
total  melons,  $32,000,000. 

All  this  time  the  stock  of  the  company  was  paying  six 
and  seven  per  cent. 

It  appears  that  there  were  still  left  in  the  hands  of  the 
company  about  $10,000,000  of  the  securities  of  other  com- 
panies purchased  with  surplus  earnings  not  used  in  divi- 
dends. This  surplus  proving  irksome,  in  1889  the  Great 
Northern  Railway  Company  was  organized  as  a  holding 
company  to  absorb  these  surplus  securities.  Preferred 
stock  in  the  Great  Northern  was  issued  to  the  stockhold- 
ers in  the  old  company  (St.  Paul,  Minneapolis  &  Manitoba) 
at  fifty  cents  on  the  dollar.  The  other  fifty  cents  was  sup- 
posed to  be  provided  for  by  transferring  to  the  new  com- 
pany the  accumulated  stock  assets  of  the  old.  What  this 
really  meant  was  that  the  surplus  earnings,  invested  from 
time  to  time  in  the  securities  of  other  companies,  had 
formed  another  watermelon  (about  $10,000,000),  now  to 


s"It  would  be  difficult  to  devise  a  scheme  better  intended  to 
confuse  and  to  conceal  than  that  employed  in  the  development  and 
operation  of  the  Great  Northern  Railway  System." — Interstate  Com- 
merce Commission,  Report  and  Order  in  City  of  Spokane  versus 
Northern  Pacific  Railway  Company  et  al.,  page  405. 


68  STORIES    OF    THE    GREAT    RAILROADS 

be  cut.  It  had  also  great  advantages  because  without  chance 
of  publicity  it  brought  the  securities  into  the  capital,  and 
was  a  neat  and  effective  device  generally. 

The  new  company,  having  chiefly  the  same  stockholders 
as  the  old,  leased  the  lines  of  the  old  company  at  an  annual 
rental  of  six  per  cent  on  the  capital  stock,  which,  as  we 
have  seen,  was  chiefly  water.  If  you  will  think  for  a  mo- 
ment you  will  perceive  how  all  these  operations  provided 
for  the  distribution  of  enormous  profits  without  paying  on 
any  stock  a  larger  apparent  dividend  than  seven  per  cent. 
The  real  dividends  on  the  real  stock  were  in  the  year  of 
grace  1890  twenty-four  and  seventy  one  hundredths  per 
cent,  and  in  1892  twenty-eight  and  thirty-two  one  hun- 
dredths per  cent,  but  ostensibly  they  were  only  seven  per 
cent,  and  these  were  the  measures  that  disguised  them. 

As  soon  as  the  Great  Northern  was  well  organized  there 
were  issued  $15,000,000  of  collateral  trust  bonds  secured 
by  a  deposit  of  £3,000,000  of  a  previous  "Pacific  Coast  ex- 
tension" bond  issue  of  the  St.  Paul,  Minneapolis  &  Mani- 
toba. These  bonds  were  issued  to  stockholders  at  72^2 
cents  on  the  dollar.  Being  worth,  we  may  believe,  par, 
here  was  melon  No.  8  of  $4,125,000  and  an  increase  in  capi- 
talization (on  which  the  public  must  pay  dividends  and  in- 
terest) of  $15,000,000. 

The  next  melon  was  small  but  tasty — $5, 000,000*o f  stock, 
issued  in  1893  to  stockholders  at  par;  market  value,  140; 
melon,  $2,000,000. 

The  company  had  now  completed  and  was  operating  its 
line  to  the  Pacific  coast,  the  chief  cost  thereof  having  been 
paid  out  of  the  accumulated  earnings  of  the  old  St.  Paul, 
Minneapolis  &  Manitoba,  being  in  effect  another  melon. 
"Watermelons,"  by  the  way,  as  a  term  applied  to  these 
things,  is  not  scientific.  The  scientific  name  is  "secret  re- 
serves," which  sounds  much  more  respectable,  I  am  sure. 
"Secret  reserves"  exist  in  the  operation  of  almost  every 


THE    GREATEST    MELON    PATCH    IN    THE    WORLD  69 

American  railroad.  Nobody  knows  about  them  but  the 
gentlemen  on  the  inside.  When  they  are  ripe  they  are  cut 
up,  usually  in  the  form  of  new  stock  or  bond  issue.  Lately 
the  question  has  been  raised  whether  "secret  reserves"  are 
honest.  This,  no  doubt,  will  cause  pain  to  Mr.  Hill  and  Mr. 
Higginson. 

But  to  return  to  our  muttons,  or,  perhaps  I  should  say, 
our  melons  (a  figure  of  speech  that  Mr.  Hill  will  appre- 
ciate). Having  put  its  road  through  to  the  coast,  the  Great 
Northern  in  1895  (hard-times  year)  earned  a  five  per  cent 
dividend  on  all  its  stock,  paid  the  "rental"  of  six  per  cent 
on  the  original  $15,000,000  of  watered  stock  in  the  St.  Paul, 
Minneapolis  &  Manitoba,  $540,000  interest  on  $9,000,000 
of  watered  bonds,  $500,000  interest  on  $10,000,000  of  wa- 
tered stock  exchanged  for  securities  taken  over  from  the 
St.  Paul,  Minneapolis  &  Manitoba  Company,  and  had  a 
surplus. 

Tribute  was  good  in  the  Inland  Empire  that  year. 

It  was  the  year  when  the  people  of  Spokane,  having 
waited  vainly  for  the  low  rates  and  consequent  prosperity 
promised  by  Mr.  Hill,  were  thinking  wearily  of  the  $70,000 
and  the  right  of  way  they  had  bestowed  upon  him. 

It  was  also  the  year  in  which  the  plea  was  first  made  that 
Mr.  Hill  could  not  afford  to  keep  his  promises  to  the  people 
of  Spokane. 

Suppose  we  take  a  look  at  that. 

What  was  the  share  of  Mr.  Hill's  railroad  in  the  annual 
loot  for  the  Spokane  country  ? 

Total:  about  $800,000;  three  roads;  share  of  Mr.  Hill's 
road,  $266,000— a  year. 

Good.  And  what  interest  did  Mr.  Hill  and  his  associ- 
ates draw  that  year  merely  from  the  various  watermelons 
they  had  cut?  $1,940,000. 

Therefore  if  they  had  deducted  the  Spokane  loot  from 
the  watermelon  interest,  there  would  still  have  remained 


70  STORIES    OF    THE    GREAT    RAILROADS 

that  year  $1,674,000  of  watermelon  interest.  Mr.  Hill's 
share  of  this  fund  was  something  like  $300,000  a  year.  With 
proper  economy  a  man  can  live  on  $300,000  a  year,  espe- 
cially if  he  have  other  great  sources  of  income.  No,  you 
may  say,  if  you  like,  that  Mr.  Hill  did  not  care  to  keep 
his  promises  to  Spokane  or  had  forgotten  them ;  it  is  rather 
difficult  to  say  that  he  could  not  afford  to  keep  them. 

The  Great  Northern  now  proceeded  to  redeem  the  $15,- 
000,000  four  per  cent  collateral  trust  bonds,  heretofore 
mentioned  as  melon  No.  8,  by  exchanging  them  for  seven 
per  cent  stock.  The  insiders,  who  held  the  four  per  cent 
bonds,  had  paid  on  them  at  the  rate  of  72*/2  cents  on  the 
dollar — a  fine  melon.  There  was  now  issued  $25,000,000  of 
the  new  stock,  and  for  their  portions  above  the  equivalent 
of  their  bond  holdings  the  insiders  paid  60  cents  on  the  dol- 
lar. The  other  40  cents  were  juggled  for  them  behind  more 
"secret  reserves"  of  stock  assets ;  that  is  to  say,  stocks  pur- 
chased with  diverted  earnings.  This  was  in  fact  the  finest 
growth  so  far  produced  in  our  melon  patch.  Thus,  the 
market  value  of  the  seven  per  cent  stock  was  180.  The 
bonds  were  worth  about  par,  let  us  say.  Bonds  worth  $15,- 
000,000  were  exchanged  for  stock  worth  $45,000,000;  mel- 
on, $30,000,000. 

On  the  bonds  the  annual  interest  charges  to  the  public 
were  $600,000 ;  on  the  new  stock  the  annual  interest  charges 
to  the  public  were  $1,750,000;  difference  to  the  public  $1,- 
150,000 — a  year.  But  if  we  will  grow  fancy  melons,  we 
must  pay  fancy  prices  for  them. 

In  October,  1898,  the  melon  cutters  issued  $25,000,000  of 
Great  Northern  stock  which  they  exchanged  (in  their  own 
safes)  for  $20,000,000  of  St.  Paul,  Minneapolis  &  Mani- 
toba stock.  The  Great  Northern  stock  was  worth  192. 
The  happy  gentlemen  gave  a  share  of  St.  Paul,  Minneapolis 
&  Manitoba  and  received  a  share  and  a  quarter  of  Great 


THE   GREATEST    MELON    PATCH    IN    THE    WORLD  71 

Northern.  Actual  value  of  what  they  received,  240;  price 
paid,  nothing;  melon,  the  whole  thing. 

Think  of  it.  In  1879  the  happy  gentlemen  had  voted 
themselves  $15,000,000  of  St.  Paul,  Minneapolis  &  Mani- 
toba stock  for  which  they  paid  not  a  cent.  On  this  stock 
they  had  received  every  year  after  1881  dividends  of  not 
less  than  six  per  cent;  and  now  for  this  investment  of 
nothing  they  received  securities  worth  $36,000,000. 

About  this  time  the  capital  stock  of  the  Great  Northern 
had  become  $75,000,000.  Not  more  than  $35,000,000  of  this 
could  be  supposed  to  represent  actual  investment;  $40,000,- 
000  represented  watermelons,  great  and  small,  on  which  the 
public  was  industriously  paying  the  dividends  and  interest. 

Of  the  total  capital,  53  33-100  per  cent  was  water. 

On  water  and  all,  the  enterprise  was  paying  six  per  cent 
a  year;  on  the  capital  paid  in,  12  8-100  per  cent  a  year. 

Meanwhile  the  garden  ceased  not  to  produce  goodly  fruit. 

The  next  year,  1899,  the  Head  Gardener  brought  in  a 
fine  specimen  from  the  vines — an  additional  issue  of  $15,- 
000,000  Great  Northern  stock  to  stockholders  at  par;  mar- 
ket value,  190;  melon,  $13,500,000. 

The  next  year's  crop  was  an  issue  at  par  to  stockholders 
of  $9,000,000  of  additional  stock;  market  value,  175;  mel- 
on, $6,750,000.  Not  bad  for  an  off  year. 

The  next  year's  product  was  a  lovely  thing — an  issue  of 
$25,000,000  of  additional  stock  to  stockholders  at  80;  mar- 
ket price,  203 ;  melon,  $30,750,000. 

For  the  next  three  years  the  gardeners  were  busy  in  pre- 
paring the  soil  for  future  crops  by  charging  off  profits  into 
operating  expenses  and  by  capitalizing  earnings. 

In  1905  the  results  of  these  labors  were  apparent  in  a 
mammoth  melon  of  the  choice  early-seedling  variety.  Twen- 
ty-five million  dollars  of  additional  stock  was  issued  to 
stockholders  at  par;  market  value,  364;  melon,  $41,000,000. 

The  next  year  saw  the  issue  of  $60,000,000  of  additional 


72  STORIES    OF    THE    GREAT    RAILROADS 

stock  at  par  to  stockholders  and  worth  240;  melon,  $84,000,- 
000.  Stevenson  speaks  somewhere  of  the  Arabian  Nights' 
extravaganza  of  American  business.  These  operations  seem 
to  have  been  its  delirium. 

But  even  these  with  all  other  exploits  were  soon  to  be 
surpassed. 

In  all  these  years  the  company  had  not  ceased  to  accumu- 
late (chiefly  from  its  earnings  and  "secret  reserves")  prop- 
erty of  various  kinds;  railroads,  coal  mines,  iron  mines, 
lands,  docks,  and  so  on.  These  were  as  a  rule,  held  nomi- 
nally by  companies  having  different  names,  the  Great 
Northern  merely  owning  the  stock.  Of  these  properties 
most  of  the  railroads  were  reserved  for  future  manipula- 
tion. All  the  others  were  now  reorganized  and  absorbed 
into  one  company,  and  in  that  company  stockholders  of  the 
Great  Northern  were  presented  with  certificates  of  equi- 
table interest. 

The  greatest  of  the  properties  was  a  vast  area  of  iron- 
ore  land  in  the  Mesaba  country  of  Minnesota.  It  had  cost 
the  Great  Northern  stockholders  nothing,  having  been  paid 
for  out  of  earnings  or  acquired  from  land  grants,  or  in 
other  inexpensive  ways — showing  the  great  advantage  of 
having  a  good  profit-and-loss  surplus  and  a  healthy  "secret 
reserve." 

Of  the  certificates  in  the  new  company  there  were  issued 
to  stockholders  1,500,000.  They  then  had  a  market  value 
of  90;  melon  (up  to  that  time),  $135,000,000. 

But  this  is  a  mere  fraction  of  the  aggregate  profit. 

The  company  had  a  contract  to  furnish  ore  to  the  United 
States  Steel  Corporation.  The  terms  reveal  a  staggering 
prospect  of  wealth.  Experts  report  the  ore  covered  by  the 
certificates  at  between  400,000,000  and  600,000,000  tons. 
Mr.  Hill  believes  it  to  be  still  more. 

If  it  is  600,000,000  tons,  the  yield  to  the  holders  of  these 
certificates  will  be  $1,186,400,000, 


THE   GREATEST    MELON    PATCH    IN    THE    WORLD  73 

Nothing  equaling  or  approaching  this  colossal  gain  has 
been  known  in  the  commercial  history  of  the  world.  And 
with  such  almost  inconceivable  wealth  assured  in  addition 
to  the  great  wealth  already  reaped,  the  Great  Northern  Rail- 
road refused  to  give  up  its  share  in  the  loot  of  Spokane, 
$266,000  a  year. 

But  as  to  the  great  wealth  already  reaped,  we  are  not  yet 
through  with  that. 

I  said  in  the  beginning  that  Mr.  Hill  and  his  associates 
had  taken  from  the  enterprise,  aside  from  dividends,  inter- 
est and  other  emoluments,  the  sum  of  $407,000,000.  Let 
us  recapitulate  and  see  how  this  total  is  reached. 

Four  hundred  and  seven  million  dollars'  worth  of  water- 
melons in  twenty-seven  years.  That  eclipses  all  records. 

Counting  interest  on  straight  bonds  and  interest  on 
straight  stock,  with  the  watermelons,  the  Great  Northern 
stock  paid  in  1906  152  46-100  per  cent. 

At  the  same  time  there  had  been  capitalized  $100,000,000 
of  earnings. 

Yet  all  this,  overpowering  as  it  seems,  is  but  a  prelude  to 
the  whole  story.  Four  hundred  and  seven  million  dollars 
and  all  these  dividend  and  interest  charges  are  only  a  part 
of  the  profits  made  by  the  men  that  in  1879  secured  for 
nothing  the  St.  Paul  &  Pacific  railroad  and  by  their  associ- 
ates in  these  delightful  enterprises. 

In  1896  the  Great  Northern  bought  for  $4,133,456  con- 
trol of  the  Northern  Pacific  Railroad  and  with  it  an  abso- 
lute control  and  domination  of  the  traffic  and  rates  of  the 
Northwest.  The  Northern  Pacific  stock  for  which  $4,133,- 
456  was  then  paid  was  now  a  par  value  of  $25,834,100  and 
a  market  value  still  greater. 

In  1905  the  same  interests  bought  for  the  Great  North- 
ern and  Northern  Pacific  a  control  of  the  Chicago,  Burling- 
ton &  Quincy  Railroad,  giving  in  payment  therefor  the 
promises  to  pay  of  the  Chicago,  Burlington  &  Quincy,  prin- 


74         STORIES  OF  THE  GREAT  RAILROADS 

cipal  and  interest  guaranteed  by  the  purchasing  roads. 
These  bonds  are  to  be  paid  in  twenty  years  from  the  sur- 
plus earnings  of  the  Chicago,  Burlington  &  Quincy.  The 
Great  Northern  and  the  Northern  Pacific  will  then  own 
the  great  Burlington  system  without  the  expenditure  of  a 
dollar.  If  the  nation  does  not  interfere,  what  a  melon  will 
be  here,  my  countrymen ! 

In  1908  the  same  interests  bought  control  of  the  great 
Colorado  &  Southern  system. 

All  of  these  purchases  were  (or  are  to  be)  paid  for  out 
of  the  profits  of  the  enterprise  that  began  when,  with  or 
without  the  assistance  of  Jesse  P.  Farley,  court  officer  and 
receiver,  our  Canadian  friends  agreed  to  get  possession  of 
the  St.  Paul  &  Pacific  without  paying  for  it. 

Taking  everything  together,  the  value  of  the  Great 
Northern  Railroad  as  given  by  Mr.  Hill's  witnesses  on  the 
stand,  the  various  securities  owned,  the  present  value  of  the 
Northern  Pacific  and  Chicago,  Burlington  &  Quincy  hold- 
ings, the  value  of  the  ore  lands  based  upon  a  reasonable 
calculation  of  product,  the  present  total  extent  of  this  prop- 
erty (excluding  the  Colorado  &  Southern)  is  one  billion 
eight  hundred  and  forty-six  million  nine  hundred  and  fifty- 
two  thousand  five  hundred  and  fifty-three  dollars. 

From  this  is  to  be  subtracted  the  total  actual  investment, 
including  the  Northern  Pacific  and  the  Chicago,  Burlington 
&  Quincy,  but  excluding  the  Colorado  &  Southern,  $320,- 
935,932. 

This  leaves  the  total  actual  profits  (achieved  and  in  sight) 
of  this  syndicate  one  billion  five  hundred  and  twenty-six 
million  sixteen  thousand  six  hundred  and  twenty-one  dol- 
lars. 

Before  this  stupendous  fact  there  is  no  appropriate  com- 
ment. 

In  his  first  brief  Mr.  Adams  had  indicated  some  of  there 
conditions.  Having  now  the  indubitable  proof  of  them  for 


THE   GREATEST    MELON    PATCH    IN    THE    WORLD  75 

the  first  time  laid  bare,  Mr.  Adams,  produced  in  his  second 
brief  a  memorable  argument.  Would  that  every  American 
citizen  could  read  it.  I  know  not  where  else  in  such  com- 
pass is  anything  so  clear,  so  comprehensive,  so  strong  and 
yet  so  calmly  and  reasonably  phrased. 

Mr.  Adams  seemed  to  show  that  he  was  not  only  a  great 
lawyer,  but  a  student  marvelously  well  versed  in  men  and 
history.  He  went  first  to  the  roots  of  things  and  argued 
for  these  doctrines. 

1. — That  a  representative  government  exercises  its  func- 
tions as  a  trustee  for  the  public  and  cannot  divest  itself  of 
its  trust. 

2. — It  can  and  does  employ  a  railroad  company  as  an 
agent  to  build  and  administer  a  highway,  but  the  agent  can- 
not lawfully  exercise  sovereign  power  except  as  an  agent. 

3. — Railroad  rates  are  a  form  of  taxes,  levied  to  main- 
tain the  highways  and  compensate  those  that  operate  them, 
but  all  taxes  are  an  exercise  of  sovereign  power  which  our 
government  holds  as  a  trustee  for  the  public.  Therefore 
railroad  rates  must  always  be  subject  to  the  decision  and 
supervision  of  government. 

4. — There  can  be  no  such  thing  as  a  private  highway. 
All  highways  are  public.  The  railroads  do  not  own  the 
highways  they  operate,  but  rather  administer  them  as  agents 
of  the  government  which  merely  executes  a  public  trust. 

He  then  took  up  the  contention  of  the  railroads  in  the 
Spokane  case  that  they  could  not  lower  the  rates  to  Spo- 
kane and  still  derive  a  just  and  reasonable  compensation. 
He  cited  the  foregoing  discoveries.  He  showed  that  where- 
as the  Great  Northern  had  indicated  an  annual  profit  of 
only  3.65  per  cent  on  its  valuation,  the  real  profit  of  the 
enterprise  was  in  1906  162  46-100  per  cent,  and  for  many 
years  had  varied  between  seven  per  cent  and  240  per  cent  a 
year.  He  showed  that  aside  from  dividends  and  interest  the 
actual  profits  had  been  almost  as  much  as  the  highest  total 


76  STORIES    OF    THE    GREAT    RAILROADS 

valuation  of  the  property  itself  as  asserted  by  Mr.  Hill's 
witnesses. 

To  this  great  plea  no  adequate  refutation  was  attempted. 
We  may  well  believe  that  none  was  possible. 
No  such  probing  of  the  depths  of  railroad  management 
had  e\er  been  made  in  this  country.     For  nineteen  months 
the  Interstate  Commerce  Commission  considered  the  case. 
Then  it  rendered  a  decision,  based  chiefly  upon  the  ques- 
tion of  valuation,  in  favor  of  the  complainants,  the  people 
of  Spokane,  and  against  the  railroads. 

I  emphasize  the  base  of  the  decision  as  the  question  of 
valuation.  I  would  have  you  note  that  the  commissioners 
did  not  pass  upon  Mr.  Adams'  powerful  thesis  concerning 
railroad  sovereignty.  I  take  it  they  did  not  care  to  handle 
that  stick  of  dynamite.  But  their  concurrence  in  his  doc- 
trine of  valuation  was  sufficiently  revolutionary  without 
anything  else. 

Because  if  the  courts  should  ever  uphold  the  decision  of 
the  Commission  there  must  needs  be  a  new  and  unprece- 
dented basis  of  railroad  rates  in  this  country.  The  com- 
panies might  as  well  tear  up  their  tariff  sheets. 

Throughout  the  Southwest,  to  give  but  one  example,  ex- 
actly the  principle  that  has  governed  the  Spokane  rates  has 
likewise  governed  the  rates  to  many  an  inland  community. 
Water  competition  to  Galveston  has  been  at  least  as  valid 
an  exercise  for  extortion  as  water  competition  to  Seattle 
ever  was. 

If  now  such  excuses  are  not  to  avail  in  the  face  of  these 
sobering  revelations  about  actual  profits,  actual  values,  and 
"secret  reserves,"  great  changes  must  be  made  in  many 
directions. 

Other  and  greater  results  will  follow.  The  good  old 
basis  of  "what  traffic  will  bear"  (the  crux  of  the  present 
theory  of  railroad  management)  will  be  sadly  shaken.  The 
produce  of  the  watermelon  patch  will  lose  some  of  its  de- 


THE    GREATEST    MELON    PATCH    IN    THE    WORLD  7*7 

served  popularity.  The  inevitable  results  of  tolerating  "pri- 
vate public  highways"  will  be  made  clear  to  every  intelli- 
gence. The  value  of  railroads  will  no  longer  be  accepted  at 
whatever  figures  head  gardeners  may  choose  to  put  upon 
them,  but  the  Downes  probe  will  be  applied  to  lay  bare  the 
monster  profits  to  the  insiders  of  such  financial  mosaics 
as  the  Erie  and  the  Reading,  the  Wabash  and  the  Rock 
Island,  so  that  we  can  see  for  ourselves,  as  the  people  of 
Spokane  are  enabled  to  see,  how  large  a  percentage  of  our 
butcher  bills  and  grocer  bills,  gas  bills  and  coal  bills,  tailor 
bills  and  rent  bills,  shoe  bills  and  furniture  bills,  goes  day 
after  day  to  make  up  the  interest  on  the  watermelons  that 
have  luxuriated  upon  almost  every  railroad  in  America. 
For  this  is  what  the  railroad  business  in  America  really  is. 

From  control  of  our  highways  a  few  men  gather  a  mon- 
ster secret  tribute,  and  this  tribute  they  use  secretly  to  ex- 
tend their  control  of  the  highways  and  gather  more  tribute. 

In  the  end  they  become  more  powerful  than  any  govern- 
ment, more  powerful  than  the  people.  Intrenched  in  their 
huge  accumulation  of  tribute,  every  dollar  of  which  spells 
power,  they  make  the  future  tribute  what  they  will. 

From  your  minds  now  lay  aside  all  prejudice,  all  doc- 
trine, all  romance,  all  of  the  misrepresentation  with  which  a 
controlled  press  has  surrounded  this  subject.  Consider  what 
these  figures  really  mean  that  have  been  set  forth  in  the 
foregoing  pages.  Here,  then,  is  the  plain  question: 

Is  it  humanly  possible  that  these  things  shall  continue  if 
we  are  to  have  a  republican  form  of  government  ? 

One  other  thing: 

Eminent  beneficiaries  of  the  system  of  concealing  and 
dividing  enormous  railroad  profits  continually  assert  that 
the  issuing  of  watered  stock  is  "none  of  the  public's  busi- 
ness." 

If  that  be  true,  then,  as  clearly  shown  in  the  experience  of 
the  people  of  Spokane,  the  prices  you  pay  for  the  com- 


78 


STORIES    OF    THE    GREAT    RAILROADS 


modities  you  daily  consume,  for  food,  clothing  and  shelter, 
are  none  of  your  business,  and  you  have,  in  fact,  no  busi- 
ness except  to  furnish  the  tribute  extorted  by  these  watered 
stock  issues  and  to  hold  your  peace. 

You  have  never  seen  a  table  of  railroad  statistics  like  the 
table  below. 

You  should  study  it  well.  Bear  in  mind  that  it  represents 
only  the  Great  Northern  Railroad,  which  was  organized  in 
1890,  and  had  practically  the  same  stockholders  as  the  St. 
Paulj  Minneapolis  &  Manitoba.  On  the  securities  of  the  St. 
Paul,  Minneapolis  &  Manitoba  there  were  still  profits 
reaped  besides  these.  Moreover,  kindly  observe  that  this 
table  takes  no  note  of  certain  profits  earned  on  purchased 
securities  of  other  roads,  nor  of  earnings  charged  to  oper- 
ating expenses  and  improvements ;  and  also  remember  that 
all  these  profits  have  been  made  from  the  public  on  an  in- 
vestment of  nothing.  Then  I  am  sure  you  will  greatly  en- 
joy the  reading  of  the  table: 

ACTUAL  PROFITS  OF  THE  GREAT   NORTHERN  RAILROAD. 


Year 
1890. 
1891. 
1892. 
1893. 
1894. 
1895. 
1896. 
1897. 
1898. 
1899. 
1900. 
1901. 
1902. 
1903. 
1904. 
1905. 
1906. 

Amount  of 
Great  North- 
ern stock. 
$  20,000,000 
20,000,000 
20,000,000 
20,000,000 
25,000,000 
25,000,000 
25,000,000 
25,000,000 
25,000,000 
90,000,000 
99,000,000 
99,000,000 
125,000,000 
125,000,000 
125,000,000 
125,000,000 
150,000,000 

Interest  on 
Dividends  undervalued 
on  stocks.          bonds.* 
$      200,000     $    540,000 
450,000          540,000 
1,000,000           540,000 
1,000,000           540,000 
1,187,500          540,000 
1,250,000           540,000 
1,250,000           540,000 
1,250,000           540,000 
1,500,000           540,000 
3,851,033           540,000 
6,408,777          540,000 
6,897,369           540,000 
8,225,920           540,000 
8,673,973           540,000 
8,683,925           540,000 
8,693,860           540,000 
9,148,520           540,000 

Water- 
melons 
or  "benefits." 
$     4,200,000 

4,125,000 
2,000,000 

58,000,000 
20,250,000 

30,750,000 

41,000,000 
219,000,000 

Total 

Per 

Returns. 

cent. 

$     4,940,000 

24.70 

990,000 

4.95 

5,665,000 

28.32 

3,540,000 

17.70 

1,727,500 

6.91 

1,790,000 

7.16 

1,790,000 

7.16 

1,790,000 

7.16 

60,040,000 

240.14 

24,641,033 

27.37 

6,948,777 

7.02 

38,187,369 

38.57 

8,765,920 

7.01 

9,213,973 

7.37 

9,223,925 

7.37 

50,233,860 

40.18 

228,688,520 

152.46 

$69,670,877     $9,180,000     $379,325,000     $458,175,877 

How  does  this  showing  appeal  to  you  in  the  way  of  "just 
and  reasonable  profits?" 

*See~Page  68. 


THE   GREATEST    MELON    PATCH    IN    THE    WORLD  /9 

And  before  the  Interstate  Commerce  Commission  the 
Great  Northern  tried  to  show  that  it  made  only  3.65  per 
cent  a  year. 

To  this  astounding  demonstration  from  the  records  the 
attention  of  all  reactionary  editors,  cave-dwelling  reviewers, 
troglodyte  critics,  and  the  champions  of  the  corporations  is 
respectfully  invited.  I  earnestly  hope  each  of  them  will  feel 
free  to  attack  it  in  any  way  that  occurs  to  him — quite  free, 
in  fact. 


TABLE   OF   THE   FAMOUS    JAMES    J.    HILL       WATERMELONS. 


Year 

1879 

Security  Issued. 
St.    Paul,    Minneapolis    &    Manitoba    stock, 

What  the 
treasury  of 
the  railroad 
got. 

What  Mr.  Hill 
and  his 
associates 
got  as 
extra  profits. 

|  15  000  000 

1882 

St.   Paul,  Minneapolis  &  Manitoba  stock  at 

5  000  000 

2,000  000 

1883 

St.   Paul,   Minneapolis  &  Manitoba  bonds  at 
10  cents  on  the  dollar    par  100 

1  000  000 

9  000  000 

1888 

St.  Paul,  Minneapolis  &  Manitoba  bonds  at 
75     par   100    

6,000,000 

2,000,000 

1890 
1892 
1893 
1898 
1898 

(Reorganization    Into    the    Great  Northern  as 
Great  Northern  stocks  at  50,  market  71.... 
Great  Northern  bonds  at  72^,  par   100.... 
Great  Northern  stock  at  100,  market  140... 
Great  Northern  stock  at  60,  market  180  
Great    Northern    stock   in   exchange   for   St. 
Paul,   Minneapolis   &   Manitoba,  market 
192    

a  Holding 
10,000,000 
10,875,000 
5,000,000 
15,000,000 

Company.) 
4,200.000 
4,125,000 
2,000,000 
30,000,000 

28,000,000 

1899 
1899 
1901 
1905 
1906 

1906 

Great  Northern  stock  at  100,  market  190... 
Great  Northern  stock  at  100,  market  175... 
Great  Northern  stock  at  80,  market  203.... 
Great  Northern  stock  at  100,  market  264... 
Great  Northern  stock  at  100,  market  240... 
and 

15,000,000 
9,000,000 
20,000,000 
25,000,000 
60,000,000 

13,500,000 
6,750,000 
30,750,000 
41,000,000 
84,000,000 

135,000,000 

Totals   $181,875,000       *$407,325,000 

*This  table,  which,  except  for  the  comments,  Is  taken  from  Mr.  Downes' 
report  to  Mr.  Adams,  does  not  include  the  net  profit  on  the  origimal  bond 
issue  of  1879. 


CHAPTER  IV. 

THE   ROMANCE   OF   DEATH    AVENUE. 

Glory  be  to  the  Canadian  brotherhood,  reapers  thus  in 
our  pleasant  fields  of  $407,000,000  profits  tangible  and  $1,- 
526,016,621  profits  tangible  and  prospective;  glory  be  to  the 
profits*,  glory  be  to  the  pomp  and  majesty  the  profits  sup- 
port, glory  to  us  that  patiently  supply  the  profits. 

Yet  not  too  much  glory.  Because — a  word  in  your  ear: 
the  Canadians  were  but  imitators;  no  more.  Simple  was 
their  device  for  huge  fortune-making  and  devoid  of  the  least 
originality.  On  the  confiding  Americans  they  had  but  prac- 
ticed the  games  by  which  often  and  again  the  confiding 
Americans  had  been  separated  from  their  substance. 

So  say  the  records.  In  fact,  if  we  except  only  the  narra- 
tive of  Mr.  Receiver  Farley,  reciting  strange,  sinister  things 
about  a  most  illegal,  not  to  say  criminal,  compact,  everything 
that  was  done  in  the  case  of  the  old  St.  Paul  &  Pacific,  the 
St.  Paul,  Minneapolis  &  Manitoba  and  the  Great  Northern, 
has  been  done  in  the  case  of  almost  every  American  rail- 
road. It  is  being  done  now.  For  some  space  of  time  it 
will  continue  to  be  done;  and  so,  incidentally,  will  the 
people. 

If  doubt  linger  as  to  the  perfect  accuracy  of  these  state- 
ments let  us  betake  ourselves  to  the  records  of  the  most 
famous  of  American  fortunes  intimately  connected  with  one 
of  the  best  known  and  most  confidently  advertised  of 
American  railroads.  And  to  this  inquiry  all  phases  of  hum- 
an interest  incite  us.  It  has  romance,  for  this  is  the  fortune 
that  has  occasioned  international  marriages,  repaired  dear 
old  Blenheim  Castle,  refreshed  debilitated  dukes,  warmed 

80 


THE   ROMANCE   OF   DEATH    AVENUE  81 

ancient  Hungarian  paiaces  and  cheered  the  drooping  spirits 
of  money  lenders  in  London  and  of  croupiers  in  Monte 
Carlo.  Also  it  appeals  to  our  commercial  and  patriotic  in- 
stincts, because  this  is  the  enterprise  widely  heralded  as 
"America's  greatest  railroad"  and  few  institutions  have 
exerted  upon  our  affairs  a  more  profound  influence. 

Altogether,  as  you  will  agree,  here  is  a  grand  subject  for 
our  investigation. 

And  lest  you  think  that  anything  we  shall  deduce  may 
originate  in  partiality  or  mere  assertion,  I  take  pains  to 
assure  you  that  all  our  proceedings  shall  be  founded  upon 
official  reports  and  sworn  testimony  before  investigating 
committees. 

We  go  back  now  to  the  first  chapter  of  railroad  history 
in  America  and  note  that  a  business  continuing  in  extor- 
tion had  its  origin  in  fraud.  Thus: 

Before  1853  ten  separate  railroad  companies  operated, 
or  were  assumed  to  operate,  pieces  of  the  track  now  form- 
ing one  continuous  line  between  Albany  and  Buffalo. 

Like  the  other  railroads  in  the  State  of  New  York  these 
links  had  been  built,  if  built  at  all,  with  public  funds.  State, 
counties  and  municipalities  had  granted,  all  told,  $45,000,- 
000  to  aid  in  the  building  of  railroads.  This  paid  for  all,  or 
practically  all,  the  cost  of  construction,  and  of  the  grants 
(which  were  in  the  shape  of  loans)  only  $10,000,000  has 
been  paid  back.  The  remaining  $35,000,000  of  public 
money  has  been  fraudulently  withheld  by  the  companies.  If 
you  entertain  a  question  that  a  railroad  is  purely  and  simply 
a  public  highway  you  might  reflect  carefully  upon  these 
facts.  They  are  important  to  you. 

Some  of  the  ten  companies  between  Albany  and  Buffalo 
financed  thus  from  the  public  treasury  had  chiefly  a  paper 
existence,  and  one,  the  Syracuse  &  Utica,  was  merely  a 
name. 


&2  STORIES    OF    THE    GREAT    RAILROADS 

In  1853  by  the  inevitable  process  of  consolidation  and 
unification,  which  is  evolutionary  and  goes  on  forever  and 
irresistibly,  these  ten  pieces  of  junk  had  been  consoli- 
dated into  one  called  the  New  York  Central.  To  show 
how  old  are  the  methods  we  have  been  considering  I  may 
point  out  that  in  effecting  this  consolidation  each  of  the  ten 
railroads  was  entered  with  fictitious  stock.  Some  of  those 
that  had  chiefly  a  paper  existence  were  put  in  with  the  heav- 
iest (fictitious)  capitalization  and  when  all  was  done,  Oii 
the  top  of  all  this  water  there  was  added  $8,894,500  of  still 
more  water  in  the  shape  of  a  stock  issue.  Strictly  consid- 
ering all  these  elements,  the  water  in  the  first  capitalization 
of  the  New  York  Central  was  not  less  than  three-fourths  of 
the  whole. 

From  the  beginning,  therefore,  this  was  no  arid  region. 

Vanderbilt?  You  ask.  Oh,  no.  This  was  years  before 
that  genius  had  appeared  on  the  scene.  No  Vanderbilt,  no 
James  J.  Hill,  no  E.  H.  Harriman  engineered  these  trans- 
actions. They  were  carried  on  by  a  group  of  obscure  finan- 
ciers now  lost  to  fame — from  which  we  should  be  reminded 
how  simple  is  the  process  and  how  ordinary  the  mentality  it 
requires.  Anybody  that  can  hire  a  printing  press  can  issue 
watered  stock;  anybody  that  can  lie  can  sell  it;  anybody 
that  can  bribe  can  be  protected  in  the  making  of  it;  and 
whenever  it  is  issued  it  becomes  an  enduring  tax  upon  the 
public ;  you  and  me. 

Similar  consolidations  reduced  the  various  railroad  com- 
panies between  New  York  City  and  Albany  to  one,  called 
the  Hudson  River  Railroad.  In  both  the  true  secret  of 
fortune  making  seemed  to  be  well  understood.  Thus  in 
1865  the  capital  stock  of  the  New  York  Central  had  be- 
come $24,136,661,  of  which  $5,000,000  had  been  issued 
against  surplus  earnings,  which  is  merely  a  handy  way  of 
watering.  Besides  there  were  $6,200,000  of  bonds  con- 
vertible into  stock,  which  may  be  regarded  as  additional 


THE  ROMANCE  OF  DEATH   AVENUE  83 

water.  Three  years  later  still  further  issues  had  brought 
the  capitalization  to  $28,795,000  of  which,  strictly  speak- 
ing, more  than  three-quarters  was  water. 

On  watered  stock  and  all  the  New  York  Central  paid 
dividends  of  six  per  cent,  in  1854,  1855,  1856,  1857;  seven 
per  cent  in  1858  and  1859;  eight  per  cent  in  each  year 
from  1859  to  1865  and  nine  per  cent  in  1866  and  1867. 

In  1867  this  same  railroad,  making  then  nine  per  cent 
dividends,  petitioned  the  legislature  for  permission  to  in- 
crease its  passenger  rates  on  the  ground  that  at  the  existing 
rates  it  could  not  earn  "a  just  and  reasonable  profit."  Ob- 
serve how  old  is  that  good  round  phrase ;  also  how  well 
founded.  The  petition  was  promptly  granted.  Evidently 
legislative  benevolence  to  railroads  is  a  very  ancient  custom. 

Meanwhile  the  Hudson  River  Railroad  had  a  capital  stock 
of  $6,962,971  (liberally  watered)  on  which  it  was  paying 
nine  per  cent  dividends. 

In  1869  the  Hudson  River  Railroad  cut  a  fine  melon.  It 
doubled  its  stock,  one-half  the  increase  being  water.  The 
new  stock  was  issued  to  stockholders  at  fifty  cents  on  the 
dollar,  an  arrangement  subsequently  copied  by  Mr.  Hill. 
With  the  cash  the  company  bought  St.  John's  Park,  New 
York  City,  and  destroyed  the  most  beautiful  pleasure  ground 
in  America.  Total  capital  $13,900,000,  more  than  half 
water. 

In  both  roads  Commodore  Vanderbilt  had  become  the 
controlling  influence.  He  was  now  to  give  a  startling  ex- 
hibition of  his  powers  as  a  manipulator  and  sleight-of-hand 
performer  with  railroad  properties. 

Late  on  the  night  of  December  19,  1868,  the  directors 
of  the  New  York  Central  met  secretly  at  his  house.  There 
they  voted  first  on  the  outstanding  stock  of  the  railroad  a 
cash  dividend  equal  to  seven  and  two-tenths  per  cent.  Then 
they  voted  to  each  stockholder  free  additional  stock  to  the 
extent  of  eighty  per  cent  of  his  holdings  at  the  time. 


84  STORIES    OF    THE    GREAT    RAILROADS 

"Interest  certificates"  to  provide  for  this  huge  graft  and 
to  be  exchanged  later  for  stock  had  been  printed  and  pre- 
pared in  advance.  They  were  signed  on  the  spot  and  each 
director  annexed  his  share  of  the  loot. 

What  Commodore  Vanderbilt  got  was  the  beginning  of 
the  Vanderbilt  fortune,  created  thus  with  the  stroke  of  a 
pen. 

Some  news  of  this  remarkable  performance  seems  to 
have  leaked  out  the  next  day,  which  was  Sunday.  Before 
daylight  Monday  morning  an  injunction  was  served  upon 
the  treasurer  of  the  company  restraining  him  from  issuing 
the  "interest  certificates"  which  stood  in  lieu  of  stock.  It 
came  too  late.  They  were  already  issued. 

Even  Wall  Street  gasped  and  revolted  at  this  bold  ex- 
ploit. The  ostensible  excuse  for  the  enormous  melon  *was 
that  the  company  had  large  surplus  earnings,  many  im- 
provements and  great  real  estate  investments  to  be  capi- 
talized and  this  was  the  way  to  capitalize  them.  The  lead- 
ing financial  journal  of  that  day  pointed  out  that  these  as- 
sertions were  utterly  false.  There  could  be  no  surplus 
because  the  company  had  repeatedly  borrowed  money  to 
pay  dividends.  The  total  surplus  earnings  in  fourteen  years 
had  been  only  $5,000,000  and  these  had  been  already  capi- 
talized. There  were  no  improvements  and  no  great  real 
estate  investments.  The  whole  story,  therefore,  was  mere- 
ly an  example  of  the  sheer  fraud  and  iron-faced  lying  that 
have  always  attended  the  railroad  business  in  tKe  United 
States.  The  men  on  the  inside  had  merely  lied  to  the  pub- 
lic while  they  rifled  the  public's  pockets, 

Yet  the  money  obtained  in  this  way  was  not  all  of  the 
melons  that  graced  the  festive  board  on  this  occasion.  Mr. 
Vanderbilt  had  quietly  organized  a  little  pool  composed 
chiefly  of  members  of  his  own  family.  He  deposited  in 
London  $7,000,000  of  New  York  Central  stock  as  secur- 
ity for  a  loan  wherewith  to  work  his  purposes.  He  then 


THE   ROMANCE  OF  DEATH   AVENUE  85 

drove  down  the  price  of  the  stock  from  one  hundred  and 
thirty-five  to  eighty-four.  This  shook  out  the  small  holders 
and  he  picked  up  what  they  dropped,  his  total  purchases 
being  made  at  an  average  of  ninety.  When  all  the  timid 
ones  had  fled  he  held  his  secret  meeting,  declared  the  cash 
dividend  of  seven  and  two-tenths  per  cent  and  the  stock 
dividend  of  eighty  per  cent,  grabbed  his  certificates  and 
locked  them  up  in  his  safe. 

Up  bounded  the  stock  like  a  balloon. 

By  these  operations  he  made  first  $4,200,000  profit  on 
the  $7,000,000  of  stock  he  had  deposited  for  collateral ;  he 
had  with  a  printing  press  almost  doubled  his  fortune;  and 
he  now  held  all  the  stock  the  timid  ones  dropped  in  the 
decline  he  himself  had  caused. 

Remember  these  things  when  next  you  admire  the  re- 
paired Blenheim  Castle  or  the  rejuvenated  dukes,  because 
from  these  sources  came  both  styles  of  rehabilitation;  also 
many  other  grand  things. 

Commodore  Vanderbilt  by  no  means  escaped  without 
public  scorn  and  wrath. 

"Either,"  declared  a  prominent  Wall  Street  journal,  "the 
New  York  Central  has  had  a  much  larger  surplus  income 
than  appeared  from  its  annual  reports  and  the  present  divi- 
dend fairly  represents  it,  or  the  representations  of  surplus 
earnings  are  fictitious  and  the  dividend  is  unwarranted."  In 
either  case  one  would  think  the  operation  about  on  a  par 
with  safe-blowing  or  second-story  work. 

But  expressions  of  public  resentment  availed  not  to 
check  the  melon-cutting.  They  never  do. 

All  things  being  now  prepared,  Head  Gardener  Vander- 
bilt brought  in  the  next  fruit,  being  the  consolidation  of  the 
Hudson  River  and  the  New  York  Central  railroads,  planned 
before  the  secret  meeting  at  his  house. 

The  manner  in  which  this  scandalous  deal  was  carried  out 
is  worth  your  attention ;  particularly  as  you  have  paid  for  it 
ever  since. 


86  STORIES    OF    THE    GREAT    RAILROADS 

First,  a  new  company  was  formed,  the  New  York  Cen- 
tral and  Hudson  River,  with  capital  stock  of  $45,000,000, 
being  four  hundred  and  fifty  thousand  shares  of  one  hun- 
dred dollars  each.  Of  this  the  stockholders  of  the  New 
York  Central  received  $28,972,000  and  the  stockholders  of 
the  Hudson  River  $16,028,000.  So  far,  good.  But  this 
left  the  $22,500,000  of  "interest  certificates,"  the  flood  of 
water  that  has  been  issued  at  the  secret  meeting.  These 
were  now  provided  for.  The  directors  of  the  new  com- 
pany had  been  authorized  to  issue  additional  stock.  They 
issued  enough  to  enable  the  "interest  certificates"  to  be  ex- 
changed into  stock  at  par. 

When  this  had  been  done  it  appeared  that  the  stock- 
holders of  the  Hudson  River  had  really  received  $29,651,800 
for  their  $13,900,000  of  stock  in  the  old  company,  and  for 
their  $28,795,000  the  stockholders  of  the  New  York  Cen- 
tral had  received  $59,605,650.  Total  capitalization  of  the 
new  company  $89,257,450.  Water  upon  water  and  then 
more  water. 

The  authorization  of  the  new  issue  by  which  this  result 
was  achieved  was  so  worded  that  while  ostensibly  it  meant 
one  thing,  another  and  a  very  different  meaning  could  be 
drawn  from  it.  So  great  was  this  inconsistency  that  ever 
since  thoughtful  men  have  questioned  the  validity  of  the 
issue,  and  wondered  what  the  courts  would  do  about  it  if 
it  should  be  brought  to  their  attention. 

Of  the  huge  accumulation  of  water  in  the  $89,257,450  of 
capitalization  more  than  $50,000,000  consisted  of  securities 
that  were  largely  in  the  nature  of  gifts  of  Cornelius  Van- 
derbilt  to  himself  and  his  family. 

On  this  fictitious  capitalization,  amounting  to  a  sum  that 
seems  to  the  reflective  mind  not  less  than  colossal,  the  pub- 
lic has  ever  since  continued  to  pay  five,  six  and  seven  per 
cent  a  yean 


THE  ROMANCE  OF  DEATH   AVENUE  87 

To  such  a  sordid  and  repulsive  story  nothing  was  lacking 
but  rotten  bookkeeping,  and  this  was  presently  supplied. 
The  water  in  the  $89,257,450  of  new  capitalization  included 
$44,428,000  of  "consolidation  certificates."  For  twenty- 
five  years  the  annual  reports  of  the  Company  were  obliged 
to  juggle  with  this  item.  Therefore  every  year  $31,157,904 
of  the  $44,428,000  was  shoved  into  the  "cost  of  construc- 
tion" table  along  with  buildings,  bridges  and  the  like.  The 
remainder  must  have  been  divided  among  the  other  depart- 
ments— "oil  account,"  maybe,  or  "coal"  or  "stationery." 

Such  are  the  difficulties  (and  dangers)  pertaining  to  this 
branch  of  horticultural  effort. 

Meantime,  the  watermelon  was  by  no  means  the  only 
produce  that  added  millions  to  the  fortunes  of  the  insiders. 
There  were  the  fast  freight  line  and  the  express  company, 
both  fertile  in  illegitimate  profits. 

The  fast  freight  line  largely  disappeared  after  a  legisla- 
tive committee  had  turned  upon  it  a  certain  light  of  investi- 
gation (in  which  it  presented  a  very  unwholesome  appear- 
ance), but  for  many  years  it  had  been  operated  with  great 
success.  This  was  the  manner  of  it.  The  gentlemen  in 
control  of  the  New  York  Central  and  allied  railroads  or- 
ganized a  fast  freight  company  with  themselves  as  the  sole 
stockholders.  Then  they  made  a  contract  between  them- 
selves as  the  fast  freight  company  and  themselves  as  direct- 
ors of  the  New  York  Central  by  which  the  fast  freight  cars 
were  carried  with  greater  speed  than  other  cars  and  on 
terms  exceedingly  and  unfairly  advantageous  to  the  fast 
freight  company.  Then  they  charged  the  public  additional 
rates  for  carrying  commodities  in  these  cars  and  raked  off 
the  profits,  which  were  enormous. 

If  a  shipper  wished  to  have  his  goods  forwarded  with 
any  reasonable  celerity,  he  must  ship  by  one  of  these  fast 
freight  lines,  and  pay  the  toll  to  the  insiders.  Otherwise  his 
shipment  would  be  subject  to  delay.  So-called  "Red  Lines," 


88  STORIES    OF    THE    GREAT    KAILROADS 

"Blue  Lines,"  "White  Lines,"  gave  an  appearance  of  com- 
petition to  this  nefarious  traffic.  As  a  matter  of  fact  all 
were  owned  by  the  same  insiders  and  all  represented  swin- 
dles on  the  public  and  on  the  small  stockholders  of  the  rail- 
roads. 

Millions  were  gained  in  this  way — for  the  benefit  of 
Blenheim  and  other  dear  old  castles,  and  the  refreshing  of 
the  dukes. 

Another  profitable  device  was  the  express  contract, 
which,  rather  strangely,  still  survives  in  spite  of  public 
opinion.  Cars  of  the  express  companies  were  hauled  by  the 
railroads  at  low  rates,  enabling  the  express  companies 
which  are  owned  exclusively  by  the  railroad  insiders,  to 
reap  great  profits.  The  Vanderbilt  family  owned  some 
years  ago,  thirty  thousand  shares  of  American  Express 
stock.  In  the  Merchant's  Despatch  Transportation  Com- 
pany, another  favorite  concern,  the  same  family  owned 
twenty-four  thousand  of  the  thirty  thousand  shares.  This 
singular  institution,  the  exact  utility  of  which  was  never 
disclosed,  was  not  long  ago  earning  forty  per  cent  annual 
dividends  on  stock  only  one-fourth  of  which  had  been  paid 
for,  and  earning  these  returns  chiefly  by  means  of  the 
favorable  contracts  with  the  New  York  Central  lines. 
This  seems  to  be  better  than  many  watermelons,  because  it 
goes  on  forever. 

Similar  observations  apply  to  the  relations  between  the 
New  York  Central  railroad  and  the  old  Wagner  Sleeping 
Car  Company,  a  concern  owned  almost  entirely  by  the  Van- 
derbilts.  A  committee  of  the  legislature  once  looked  into 
the  arrangement  between  the  railroad  and  this  company 
and  made  some  exceedingly  pertinent  comments  thereon, 
but  nothing  ever  came  of  its  findings.  The  Wagner  Com- 
pany made  for  its  owners  ten  per  cent  a  year,  chiefly  be- 
cause of  the  contract  that  its  owners  had  made  with  them- 
selves as  directors  of  the  New  York  Central.  In  1900,  the 


THE   ROMANCE   OF   DEATH    AVENUE  89 

Wagner  Company  was  merged  with  the  Pullman  on  very 
favorable  terms  to  the  Vanderbilts,  who  became  large 
stockholders  in  the  amalgamated  company.  In  1907,  the 
statement  was  made  that  the  company,  since  the  consolida- 
tion, had  made  annual  dividends  of  thirty  per  cent  a  year 
in  stock  and  cash. 

But  all  such  items  suggest  only  a  part  of  the  sources  of 
the  wealth  that  remade  Blenheim.  Included  in  the  same 
generous  fountain  are  such  things  as  the  Albany  bridge 
and  the  Spuyten  Duyvil  &  Port  Morris  railroad. 

The  small  steel  bridge  across  the  Hudson  River  at  Al- 
bany was  for  many  years  owned  by  a  separate  company,  of 
which  the  Vanderbilt  family  were  the  chief  stockholders, 
and  that  sturdy  and  famous  champion  of  commercial  ideal- 
ism, Chauncey  M.  Depew,  was  president.  This  company 
had  a  contract  with  the  New  York  Central  (which  used  the 
bridge  as  an  approach  to  Albany  station)  by  which  the 
bridge  company  collected  approximately  ten  cents  for  every 
passenger  carried  across  the  bridge,  with  other  tolls  for 
freight  cars.  The  profits  under  this  arrangement  were 
goodly.  As  a  matter  of  most  obvious  fact  the  railroad  com- 
pany should  have  built  and  owned  the  bridge,  but  the  other 
company  was  interposed  as  a  convenient  form  of  "bene- 
fit." About  four  years  ago,  this  scandal,  after  festering 
twenty-five  years  or  so,  came  to  a  head  in  the  New  York 
legislature  and  the  bridge  company  disappeared. 

The  Spuyten  Duyvil  &  Port  Morris  railroad  was  part  of 
the  main  line  of  the  old  Hudson  River  railroad.  It  was 
less  than  six  miles  long  and  owned  by  Commodore  Vander- 
bilt. He  leased  it  at  a  highly  remunerative  rental,  first  to 
the  Hudson  River,  and  then  to  his  consolidated  company. 
Three  years  ago  the  New  York  Central,  for  reasons  of  pub- 
lic policy,  bought  the  interest  of  the  Vanderbilt  heirs  in  this 
simple  money  making  machine,  but  even  this  occasion  was 
utilized  for  further  financial  jugglery,  and  the  essence  of  the 


90  STORIES    OF    THE    GREAT    RAILROADS 

old  Spuyten  Duyvil  &  Port  Morris  still  goes  on  drawing 
illegitimate  profits. 

Many  suggestive  facts  were  revealed  by  the  forgotten  in- 
vestigating committee  to  which  I  have  referred.  For  in- 
stance, the  committee  learned  that  peculiar  relations  existed 
between  the  New  York  Central  and  the  Standard  Oil  Com- 
pany, that  a  member  of  the  Vanderbilt  family  had  been 
made  a  large  stockholder  in  the  oil  company,  that  the  rail- 
road company  gave  to  the  oil  company  very  heavy  rebates. 
The  committee  also  learned  that  for  years  the  insiders  had 
made  great  sums  of  money  by  the  grossest  discriminations 
in  freight  rates.  Among  the  curious  and  coincident  reve- 
lations was  the  fact  that  the  railroad  insiders  had  aided  to 
build  the  great  fortune  of  A.  T.  Stewart,  celebrated  as  the 
most  successful  merchant  of  his  time  in  New  York,  and 
that  his  fortune  had  not  been  the  product  of  any  phenome- 
nal ability  on  Stewart's  part,  but  chiefly  resulted  from  a  sys- 
tem of  freight  rebates  arranged  by  and  participated  in  by 
the  gentlemen  that  managed  the  New  York  Central's  af- 
fairs. Ability!  As  a  matter  of  fact,  the  ability  required 
to  make  money  in  this  way  is  less  than  the  ability  required 
to  play  successfully  with  marked  cards  or  loaded  dice  or  to 
bet  on  a  foreknown  result. 

Returning  to  the  chronicle  of  New  York  Central  finance, 
we  find  that  in  1873  more  bonds  were  issued  to  lay  two  ad- 
ditional tracks  from  Albany  to  Buffalo,  and  the  same  year 
the  New  York  and  Harlem  railroad  was  leased,  whereby 
the  New  York  Central  obtained  possession  of  the  Grand 
Central  terminal  in  New  York  City,  and  twenty  thousand 
shares  of  Harlem  stock  that  never  had  been  issued.  This 
was  a  good  day's  work. 

In  1877  Commodore  Vanderbilt  died  and  was  succeeded 
by  his  son,  William  H.,  the  originator  of  the  two  most 
famous  phrases  in  railroad  history — "all  the  traffic  will 
bear,"  and  "the  public  be  damned."  Two  years  later,  the 


THE   ROMANCE  OF  DEATH   AVENUE  91 

world  had  a  chance  to  learn  how  much  the  various  secret 
money-making  operations  had  meant  to  the  Vanderbilt  for- 
tune. William  H.  Vanderbilt  sold  $35,000,000  of  New 
York  Central  stock  at  $130  a  share,  and  remarked  that  he 
still  held  more  than  half  of  his  holdings.  Never  has  money 
been  more  easily  made.  The  original  cash  investment  in 
the  enterprise  had  been  supplied  from  public  funds  that 
were  never  returned,  the  total  capital  stock  was  now  $89,- 
257,450,  mostly  representing  water  and  watermelons,  and 
extracting  from  the  public  five  to  eight  per  cent  a  year.  As 
before  observed,  blessed  be  horticulture. 

The  financial  policy  of  the  road  was  now  firmly  estab- 
lished. Year  by  year  it  piled  up  surplus  earnings  and  con- 
cealed and  absorbed  them  through  capitalized  "improve- 
ments" and  investments.  Year  by  year  it  extended  itself 
by  purchasing  outlying  or  competing  systems,  making  each 
purchase  the  occasion  for  more  water  and  more  profit  for 
the  insiders.  Once,  to  be  sure,  in  the  case  of  the  West 
Shore  Railroad,  competition  forced  it  into  the  purchase  of 
a  huge  unprofitable  property  constituting  a  drain  on  the  rest 
of  the  enterprise ;  but  in  the  main  the  money-making  machine 
grew  steadily,  and  as  steadily  increased  the  burden  of  the 
public  that  supported  it.  In  1887  and  1888,  the  company 
absorbed  more  than  $5,000,000  of  surplus  earnings  "in  im- 
provements." In  1890  it  issued  $15,000,000  of  four  per 
cent  debenture  bonds,  a  great  part  of  which  was  subse- 
quently redeemed  out  of  surplus  earnings.  The  next  year 
it  absorbed  the  Rome,  Watertown  &  Ogdensburg  Railroad, 
liberally  watered  the  stock  for  the  benefit  of  the  insiders 
and  then  guaranteed  five  per  cent  on  the  stock  so  watered- — 
held  by  the  same  insiders.  In  1893  the  capital  stock  was 
flooded  up  to  $100,000,000,  the  increase  being  issued  to 
stockholders  at  par.  And  so  on. 

Some  of  these  operations  represented  melons  to  the  in- 
siders. 


92          STORIES  OF  THE  GREAT  RAILROADS 

Much  grander  melons  were  to  come. 

The  gentlemen  on  the  inside  had  long  owned  controlling 
interests  in  the  Lake  Shore  &  Michigan  Southern,  and  the 
Michigan  Central  Railroads — interests  secured  with  the 
surplus  and  by-profits  of  the  New  York  Central. 

They  now  issued  $100,000,000  of  New  York  Central 
bonds,  and  with  them  ostensibly  "bought"  the  $50,000,000  of 
Lake  Shore  stock. 

That  is,  they  themselves  owning  the  Lake  Shore  stock, 
exchanged  each  share  of  it  for  two  New  York  Central 
bonds  having  the  same  par  value  as  the  stock.  This  fine, 
ripe  melon  added  $50,000,000  to  the  capitalization  (and  to 
the  burden  that  the  public  must  bear),  and  gave  to  the  for- 
tunes of  the  insiders  a  magnificent  addition  for  which  they 
had  paid  not  a  cent. 

At  the  same  time  they  exchanged  $18,738,000  of  Michi- 
gan Central  stock  for  $21,550,000  of  New  York  Central 
bonds— a  neat  little  melon  of  $2,812,000,  likewise  planted 
upon  the  public  patience. 

One  trifling  circumstance  had  long  stood  in  the  way  of 
this  operation.  It  was  illegal.  Therefore  the  gentlemen 
on  the  inside  had  the  law  changed.  About  ten  words  in- 
serted by  the  obedient  legislature  in  a  statute  of  the  State 
of  New  York  did  the  business.  One  authority  has  placed 
the  cost  of  this  addition  at  $500,000.  Ten  words,  $500,000 ; 
$50,000  a  word.  This  is  the  highest  rate  ever  paid  for 
writing  and  should  dispose  of  the  sneer  that  great  wealth 
is  indifferent  to  literature.  > 

Meanwhile  the  good  old  game  went  on  with  undiminished 
ardor,  the  absorbing  of  outlying  roads  by  watering  stock 
already  overflowing,  and  the  capitalizing  or  concealing  of 
earnings.  In  1898,  the  management  took  care  of  $1,345,- 
948  of  surplus  earnings  by  charging  them  to  "extraordinary 
expenses  and  additions  to  property" — not  specified.  In 
1899  the  financial  Moses  struck  the  rocks  again  and  out 


THE  ROMANCE  OF  DEATH   AVENUE  93 

gushed  $15,000,000  of  new  stock,  issued  to  stockholders  at 
par;  market  value,  137;  melon,  $5,550,000.  In  1900  the 
management  sopped  up  $1,691,060,  of  surplus  earnings  as 
"extraordinary  expenses"  (unexplained)  and  $2,000,000  in 
a  "special  improvements  fund" — possibly  having  an  ethical 
purpose,  none  other  being  specified.  Some  of  the  railroads 
and  securities  purchased  with  surplus  earnings,  cost  a  pretty 
sum  ($23,000,000  in  one  year)  and  yet  the  enterprise  earned 
five  per  cent  dividends  on  the  stock,  the  annual  deficit  on 
the  West  Shore  bonds  and  the  rest  of  the  fancy  financiering. 
It  was  a  community  both  patient  and  rich  that  was  worked 
for  these  things. 

Every  time  a  new  property  was  bought,  there  was  more 
water,  and  between  water  issues  ripened  the  luscious  melon. 
Thus,  in  1902,  $35,000,000  of  additional  stock  was  autho- 
rized, one-half  to  be  held  in  the  directors'  discretion,  and 
the  other  half  issued  to  stockholders  at  125.  The  market 
price  was  163,  and  the  melon  $6,650,000.  In  the  four  years 
ending  with  1903,  there  had  been  absorbed  into  the  capitali- 
zation $7,000,000  of  surplus  earnings,  disguised  under  the 
heads  of  "betterments,"  "extensions,"  and  so  on,  all  consti- 
tuting water.  In  1904  the  company  charged  off  to  operat- 
ing expenses  $3,196,452  of  additions  and  replacements,  and 
set  aside  $1,500,000  of  another  "special  improvement  fund" 
(also  possibly  ethical).  These  are  but  samples  of  the  good- 
ly fruitage. 

The  company  now  went  into  the  trolley  field  and  used 
millions  of  surplus  earnings  in  the  purchase  of  various  trol- 
ley lines.  Additional  capitalizations  seem  to  have  reached 
the  balance  sheet  under  the  head  of  "extraordinary  expen- 
ditures"— which  they  certainly  were.  In  1905  the  direct- 
ors issued  the  remaining  $17,500,000  of  stock  to  stockhold- 
ers at  par,  market  150;  melon  $8,750,000.  As  an  example 
of  what  the  management  was  doing  meanwhile  with  the 
subsidiary  lines,  I  may  mention  that  it  capitalized  this  year 


94  STORIES    OF    THE    GREAT    RAILROADS 

more  than  $7,000,000  of  the  surplus  earnings  of  the  Lake 
Shore  besides  the  12  per  cent  that  the  Lake  Shore  regularly 
earned  on  its  stock. 

I  give  one  other  sweet  sample.  It  is  the  year  1907  in 
which  the  New  York  Central  put  $2,800,000  of  its  surplus 
earnings  into  a  "special  improvement  fund,"  charged  off 
$1,308,260  more  as  operating  expenses,  bought  5,748  shares 
of  Boston  &  Albany  stock,  paid  6  per  cent  dividends  on  its 
own  stock,  milked  all  of  trie  connecting,  subsidiary,  trolley 
and  other  lines  into  which  it  had  converted  its  surplus  earn- 
ings, and  convinced  Charles  Evans  Hughes,  then  governor 
of  New  York,  now  a  Supreme  Court  justice  of  the  United 
States,  that  it  could  not  afford  to  carry  passengers  at  two 
cents  a  mile.  The  legislature  had  passed  an  act  reducing 
fares  to  the  two-cent  basis,  and  the  governor  vetoed  it. 

We  must  suppose  Governor  Hughes  never  to  have  studied 
a  New  York  Central  balance  sheet.  I  urge  him  to  get  one. 
He  will  enjoy  reading  it. 

In  the  year  1907,  the  capital  stock  was  $178,632,000,  the 
funded  debt  $230,414,845,  the  total  capitalization  $409,946,- 
845,  of  which  $175,814,990  was  water  or  capitalized  earn- 
ings. On  this  $175,000,000  the  interest  charges  to  the  pub- 
lic are  something  like  $8,750,000  a  year.  The  total  receipts 
from  passenger  traffic  in  1907  were  $29,837,859.02.  It  is  to 
pay  interest  on  this  fictitious  capitalization  that  the  pas- 
senger rates  are  based  upon  three  cents,  instead  of  two. 

But  bearing  well  in  mind  the  decision  of  the  Interstate 
Commerce  Commission  in  the  Spokane  case,  here  arise  two 
questions — pivotal,  inevitable,  to  be  thrust  more  and  more 
into  our  lives. 

The  Commission  entertained  the  contention  that  a  rail- 
road may  not  base  freight  rates  upon  a  fictitious  valuation. 

If  it  may  not  base  freight  rates  thereon,  how  can  it  base 
passenger  rates  thereon? 


THE  ROMANCE  OF  DEATH   AVENUE  95 

If  it  may  not  base  rates  thereon  may  it  pay  dividends 
thereon  ? 

To  these  questions  I  should  be  charmed  to  receive  ans- 
wers from  the  reactionary  mind. 

In  the  year  following  the  conversion  of  Governor  Hughes 
to  the  three-cent  theory,  there  was  taken  from  the  railroads 
owned  or  controlled  by  the  New  York  Central,  $5,331,384 
of  surplus  earnings  and  converted  into  "special  improve- 
ment funds,"  while  $12,595,440  of  new  equipment  and  new 
construction  was  charged  off  as  "expenses."  In  that  year 
alone,  almost  $18,000,000  of  surplus  earnings  was  con- 
cealed. This  is  more  than  one-half  of  the  total  passenger 
receipts. 

I  should  be  most  happy  to  have  the  comments  of  the  re- 
actionary and  three-cent  champions  on  these  significant 
facts. 

In  addition,  the  New  York  Central  holds  $153,700,000  of 
the  stocks  of  other  railroads,  purchased  out  of  surplus 
earnings.  On  these  its  income  in  1907  was  $10,078,- 
754.29.  No  wonder  Governor  Hughes  stood  firm  for  a 
company  in  such  a  poverty-stricken  condition. 

Capital  stock,  $178,632,000. 

Water  in  original  stocks,  lowest  estimates: 

Old   New  York  Central $13,894,560 

Old  Hudson  River 6,480,985 

Consolidation,  1869  44,428,000 


$64,802,545 

Actual  capitalization  (most  liberal  estimate),  $113,- 
828,455. 

This  seems  so  romantic. 

The  net  earnings  in  1907  were  $22,565,725.67,  or  twenty 
per  cent  on  the  utmost  sum  that  can  be  regarded  as  actual 
capitalization.  Yet  Governor  Hughes  vetoed  the  two-cent 
fare  bill. 


96  STORIES    OF    THE    GREAT    RAILROADS 

In  view  of  that  fact,  who  is  it  that  pays  for  the  water  in 
the  stock? 

There  is  also  in  the  funded  capital  (with  other  water) 
$45,289,200  of  water  from  the  Lake  Shore  deal,  and  $2,- 
522,145  from  the  Michigan  Central  deal,  $47,811,345  in  all. 
Besides  which  $63,200,000  of  surplus  earnings  have  been 
capitalized.  Altogether  the  water  and  the  capitalized  earn- 
ings amount  to  $175,814,990. 

Dear  old  Blenheim ! 

In  mitigation  of  such  showings  as  these  in  the  tables  be- 
low it  is  urged  that  some  of  the  water  has  since  become  real 
value,  and  is  therefore  justified. 

No.     None  of  it  is  justified.     For  this  reason: 

There  are  only  two  possible  views  of  a  railroad.  Either 
it  is  sovereign,  with  powers  equal  or  superior  to  govern- 
ment and  not  to  be  regulated  or  restrained.  Or  it  is  an 
agent  of  the  government,  employed  to  maintain  a  highway 
and  taking  as  compensation  for  its  services  "a  just  and 
reasonable  profit." 

Then,  as  an  agent  of  the  government,  which  in  turn  is 
nothing  but  a  trustee  for  the  public,  all  its  earnings  in  excess 
of  "a  just  and  reasonable  profit,"  should  be  returned  to  the 
public  in  the  shape  of  reduced  rates. 

By  such  methods  as  are  here  described,  such  earnings 
have  not  been  returned  at  all,  but  have  been  concealed,  jug- 
gled, manipulated  and  finally  swept,  through  the  device  of 
watered  stock,  year  after  year,  into  the  coffers  of  the  in- 
siders. 

Such  are  some  of  the  results  of  the  private  ownership  of 
public  highways.  Others  exist  that  affect  you  and  me  in 
our  citizenship  and  freedom  as  gravely  as  these  effect  us  in 
our  pocketbooks  and  household  expenses. 

Of  such  results  1  can  indicate  here  no  more  than  one, 
and  that  by  but  one  example  taken  at  random  from  a  cata- 
logue without  end. 


THE   ROMANCE   OF   DEATH    AVENUE  97 

In  the  city  of  New  York,  the  metropolis  of  Western 
civilization,  with  more  than  four  million  inhabitants,  a 
steam  railroad  is  operated  for  miles  through  crowded 
streets  and  on  the  street  level. 

For  miles,  from  St.  John's  Park  (Freight  station)  on 
the  lower  west  side  of  New  York  through  one  crowded 
street  after  another,  crossing  at  grade  important  busy 
thoroughfares  like  Canal,  Christopher,  Fourteenth,  Twenty- 
third  and  Forty-second  streets,  through  the  densely  popu- 
lated region  of  the  upper  west  side  to  the  head  of  Manhat- 
tan Island,  runs  this  private  public  highway  owned  by  the 
same  New  York  Central  Railroad  Company,  of  watered 
stock  and  shady  financial  history. 

In  popular  speech  the  street  it  thus  traverses  has 
earned  another  and  more  fearful  name.  It  is  called  Death 
Avenue. 

Along  this  private  public  highway,  trains  that  earn  the 
dividends  on  this  watered  stock  and  produce  these  rich 
watermelons  roll  all  day,  obstructing  traffic,  killing  or  maim- 
ing people.  Most  of  the  street  crossings  are  wholly  un- 
guarded ;  a  few  are  watched  by  infirm  or  superannuated 
flagmen. 

One  of  these  trains  has  killed  more  people  than  any  other 
train  in  the  world.  Kindly  note  that  it  is  a  passenger  train 
not  operated  to  carry  passengers.  It  is  operated  to  hold 
one  of  the  franchises  that  produce  melons  and  enable  the 
watered  stocks  to  reap  dividends. 

Since  1897  the  validity  of  that  franchise  has  been  more 
than  doubtful,  but  no  public  officer  has  moved  to  test  the 
question.  And  on  the  last  day  of  the  session  of  1909  of  the 
New  York  legislature,  the  railroad  lobby  rushed  through  an 
act  making  this  doubtful  franchise  valid  and  perpetual — in- 
cluding the  right  to  kill  people.  Mayor  McClellan  of  New 
York  City,  to  whom  the  bill  was  referred,  vetoed  the  meas- 


98  STORIES    OF    THE    GREAT    RAILROADS 

ure,  but  meantime  the  company's  trains  continue  running 
through  Death  Avenue. 

A  fraction  of  the  water  in  the  New  York  Central  capi- 
talization, of  the  amount  on  which  you  and  I  annually  pay 
an  unjust  and  improper  tribute,  would  suffice  to  elevate  the 
track  and  put  an  end  to  Death  Avenue. 

So  terrible  have  been  the  Death  Avenue  casualties,  espe- 
cially among  children,  that  many  parents  in  that  neighbor- 
hood have  refused  to  allow  their  children  to  go  to  school 
because  to  go  to  school  the  child  must  cross  these  tracks,  and 
up  and  down  these  tracks  all  day  in  the  heart  of  the  me- 
tropolis, thunder  the  flying  trains — franchise  savers  and 
freight  trains. 

To  date,  the  number  of  persons  recorded  as  having  been 
killed  by  the  New  York  Central  Railroad  Company  in  Death 
Avenue,  is  nearly  400.  This  is  not  a  complete  total.  Also, 
the  maimed  numbered  hundreds ;  nobody  knows  how  many. 

Against  this  frightful  slaughter-house,  the  people  of  the 
region  traversed  have  carried  on  for  twenty-seven  years  a 
pathetically  fruitless  agitation.  They  have  petitioned  the 
legislature,  they  have  besieged  commissions,  they  have  sent 
men  to  Albany,  they  have  maintained  associations,  pleaded 
with  public  officers,  introduced  bills,  signed  protests,  held 
mass  meetings,  deluged  the  mails  with  complaints;  and  the 
net  effects  is  that  the  situation  has  only  grown  worse. 

How  they  have  been  defeated  you  can  readily  understand 
if  you  know  anything  about  the  vast  and  sinister  control 
that  the  railroad  companies  exercise  over  legislative  bodies. 

In  1906,  the  outraged  citizens  felt  that  they  could  endure 
no  more.  In  a  memorable  uprising  they  elected  to  the  sen- 
ate a  man  that  they  believed  could  not  be  bribed,  bought, 
humbugged,  influenced,  nor  bullied. 

He  introduced  a  bill  to  compel  the  New  York  Central  to 
cease  slaughtering  people  in  Death  Avenue.  It  was  about 
the  one  hundredth  bill  of  that  kind.  The  railroad  lobby 


THE   ROMANCE  OF  DEATH    AVENUE  99 

had  succeeded  in  strangling  the  others  in  committee.  This 
man  would  not  let  his  bill  be  strangled.  He  got  it  through. 

It  provided  that  on  or  before  May  1,  1908,  the  New  York 
Central  Railroad  Company  should  contract  with  the  City 
of  New  York  for  the  elevating  of  the  tracks  in  Death  Ave- 
nue. If  no  such  contract  were  made  by  May  1,  1908,  the 
city  should  seize  and  condemn  the  tracks. 

The  act  was  passed  and  became  part  of  the  law  of  the 
sovereign  State  of  New  York.  May  1,  1908,  came  and 
went.  The  New  York  Central  made  no  contract  with  the 
City  to  elevate  the  tracks.  The  City  did  not  seize  and  con- 
demn the  tracks.  The  tracks  are  just  where  they  were 
when  they  were  put  down.  On  them  the  trains  rush  to  and 
fro  killing  and  maiming  people.  Not  the  slightest  attention 
has  been  paid  to  the  law.  It  remains  on  the  statute  book  a 
monument  to  our  methods  in  dealing  with  this  problem,  and 
when  the  suggestion  was  made  to  certain  officers  of  the 
New  York  Central  Railroad  Company  that  the  City  might 
seize  and  condemn  those  tracks,  the  officers  defied  the  City 
to  do  anything  of  the  kind. 

Law  and  order,  you  know.  We  must  have  law  and  order 
about  everything  but  the  corporations. 

But  is  there  no  reason  why  masses  of  people  are  allowed 
thus  to  protest,  petition  and  beg  in  vain  for  relief  from  a 
most  barbarous  and  intolerable  condition?  Certainly.  An 
excellent  reason.  Let  me  indicate  it  to  you. 

Seth  Low  Hascamp,  seven  years  old,  living  at  No.  544 
West  Forty-fourth  Street,  was  a  pet  of  his  neighborhood 
and  a  favorite  with  his  schoolmates.  On  October  22,  1908, 
on  his  way  to  school  he  crossed  Death  Avenue.  A  fran- 
chise-saving train  was  flying  down  the  tracks.  It  caught 
Seth  and  tore  him  to  pieces.  When  they  picked  up  the  little 
mangled  limbs,  men  found  that  this  boy  had  been  clad 
only  in  a  blouse,  overalls,  and  a  pair  of  shoes.  His  parents 
were  poor. 


100  STORIES    OF    THE    GREAT    RAILROADS 

It  was  a  tragedy  commonplace  enough;  he  was  the  one 
hundred  and  fiftieth  or  one  hundred  and  sixtieth  child  that 
had  gone  that  way,  on  that  deadly  avenue:  and  yet  his 
funeral  was  the  occasion  of  one  of  the  strangest  spectacles 
ever  seen  in  New  York.  Behind  the  cheap  hearse  and  poor 
little  coffin  marched  five  hundred  school  children,  the  dead 
boy's  companions  and  playmates.  They  marched  in  solemn 
silence  on  their  own  suggestion,  behind  that  hearse,  as  a 
spontaneous  protest  against  his  death,  and  because  they  had 
loved  him  and  because  they  felt  he  had  been  cruelly  mur- 
dered and  they  had  no  other  way  to  protest  against  his  mur- 
der. They  marched  by  the  church  and  parish  house  of  St. 
Ambrose  and  the  good  fathers  came  out  and  stood  with 
bared  heads  while  the  silent  children  passed.  They  marched 
by  the  school  in  which  the  boy  had  been  a  pupil  and  the  flag 
was  at  half  mast  and  the  teachers  stood  at  the  windows  and 
cried.  Men  lined  the  sidewalks  to  watch  the  procession  and 
some  had  tears  in  their  eyes  and  some  cursed.  It  was  only  a 
little  boy,  but  everybody  had  loved  him  and  he  had  been  cut 
down  as  a  needless  sacrifice  to  the  system  that  makes  of 
public  highways  a  private  graft. 

And  now  for  your  reason.  He  had  been  poor,  his  par- 
ents were  poor,  all  the  children  that  marched  in  that  proces- 
sion were  poor,  all  the  people  that  dwell  in  that  region  are 
poor,  all  the  people  that  have  been  cut  to  pieces  by  the  fran- 
chise savers  were  poor,  all  the  people  that  have  petitioned 
and  pleaded  so  many  years  in  vain,  were  poor.  There  is 
your  reason.  How  do  you  like  it? 

You  think  I  am  bitter  and  unfair  about  this  because  you 
read  these  things  with  your  eyes  but  not  with  your  under- 
standing. I  do,  therefore,  beseech  you  to  reflect  upon  one 
certain  fact.  If  they  had  been  rich  they  could  have  met 
bribery  with  bribery,  lobby  with  lobby,  influence 
with  influence,  wrong  with  wrong.  True,  is  it  not? 
Being  but  poor  they  must  submit  to  the  monstrous  perver- 


THE   ROMANCE   OF   DEATH   AVENUE  £02 

sion  of  justice  and  law-making  that  always  and  inevitably 
attends  the  gathering  of  wealth  by  illegitimate  means — of 
which  the  history  of  the  New  York  Central  Railroad  Com- 
pany affords  these  conspicuous  examples. 

Private  public  highways !  We  are  the  only  nation  in  this 
wide  world  that  has  ever  tolerated  any  such  monstrous 
and  insane  doctrine.  The  price  we  pay  for  tolerating  it  is 
expressed  to  us  on  one  side  in  augmented  cost  of  living  and 
on  the  other  in  such  stories  of  lawless  tyranny  and  wrong 
as  this  of  Death  Avenue. 

Brethren,  is  not  the  price  too  high  ?  For  when  all  is  said 
and  done,  what  do  we  get  for  surrendering  the  rights  that 
other  peoples  hold  to  be  inalienable?  Or  what  is  it  to  us 
that  Blenheim  Castle  should  be  repaired  or  partnerships 
like  the  Canadian  brotherhood  should  be  made  suddenly 
rich? 

TABLE   OF    SOME    OF    THE    SURPLUS    EARNINGS    OF    THE    NEW 
YORK  CENTRAL  THAT  HAS  BEEN  CAPITALIZED. 

1890  Earnings  in  debentures $10,000,000 

1900-1907  "Special   improvement   funds" 16,600,000 

1902-1907  Equipment    charged    off    to    operating    ex- 
penses      20,600,000 

1898-1900 

1905  Charged  off  as  extraordinary  expenses 7,400,000 

1903  Charged  off  as  additions,  improvements,  etc.     3,200,000 

1887-1888  Enlarging  terminals    5,400,000 


$63,200,000 

FIFTEEN    YEARS    OF    THIS    MELON    PATCH — GOOD   THINGS   SE- 
CURED IN  NEW  YORK  CENTRAL  INSIDERS. 


1893  3%  on 

1899  37%  on 

1902  38%  on 

1905  50%  on 

1906  40%  on 


510,000,000  stock  issue $     300,000 

515,000,000  stock  issue 5,550,000 

517,500,000  stock  issue 6,650,000 

517,500,000  stock  issue 8,750,000 

529,839,000  stock  issue 11,935,600 


Total  melons  of  fifteen  years $33,185,600 


CHAPTER  V. 

ROMANTIC  DAYS  IN  EARLY  CALIFORNIA. 

The  large,  bland,  unctuous  man  in  the  witness  chair  was 
with  a  visible  effort  maintaining  his  habitual  poise  and  air 
of  benevolent  tolerance  while  the  chief  inquisitor  of  the 
government's  commission  pounded  at  him  with  sharp  ques- 
tions. 

One  after  another  there  had  been  produced  before  him 
receipts  signed  with  his  name,  showing  that  he  had  drawn 
from  the  railroad  company  of  which  he  was  president  great 
sums  of  money  for  purposes  wholly  unexplained.  The  state 
legislature  had  been  in  session,  he  had  been  in  the  capital 
city,  he  had  made  mysterious  drafts  upon  the  company's 
treasury.  With  uneasy  shif tings  and  a  face  like  the  must 
of  wine,  he  had  heard  repeated  questions  as  to  the  nature  of 
these  drafts.  Sometimes  he  had  answered  that  he  could  not 
remember ;  sometimes  his  lawyers,  paid  by  the  railroad  com- 
pany and  watching  like  hawks,  had  commanded  him  to 
silence.  One  of  these  drafts  was  for  $171,000,  two  were 
for  $83,000  each,  one  was  for  $111,000,  another  for  $91,- 
000,  one  for  $52,000,  many  were  for  smaller  sums,  $20,000, 
$46,000,  and  so  on.  The  chairman  asked  ironically  whether 
the  witness  were  so  much  in  the  habit  of  carrying  $100,000 
in  his  trousers  pocket  that  he  could  not  remember  the  cir- 
cumstance. To  this  the  witness  made  no  response,  except 
to  show  on  his  swollen  neck  and  face  a  deeper  shade  of 
purple. 

A  half  hour  passed  thus.  Finally,  in  the  midst  of  a  tense 
and  painful  silence  (for  the  witness  had  been  governor  of 
his  state,  was  then  a  United  States  Senator,  and  was  the 

102 


ROMANTIC  DAYS   IN   EARLY   CALIFORNIA  103 

most  eminent  citizen  of   California),   the  inquisitor   said: 

"As  to  any  of  the  sums  referred  to,  were  any  of  these 
payments  made  for  the  purpose  of  influencing  legislation?" 

Before  answer  could  be  made,  the  watchful  counsel 
cut  in  : 

"For  the  reasons  already  stated,"  said  he,  "the  witness 
declines  to  answer." 

"For  reasons  above  stated,"  parroted  the  witness,  obvi- 
ously relieved,  "I  decline  to  answer." 

The  three  members  of  the  commission  conferred,  and 
then  Governor  Pattison,  who  had  been  asking  the  questions, 
arose  and  abruptly  announced: 

"The  hearing  is  adjourned  until  tomorrow  at  ten  o'clock." 

The  spectators  began  to  file  out  of  the  room  in  the  Palace 
Hotel,  San  Francisco,  where  the  commission  was  holding 
its  sessions.  Putting  on  their  hats,  the  commissioners 
moved  briskly  toward  the  door.  A  reporter  approached 
Governor  Pattison. 

"May  I  ask  where  you  are  going?"  says  he. 

"Going?     We  are  going  down  to  the  Federal  Court." 

"Ah,  yes,"  says  the  reporter.  "And  may  I  ask  what  for  ?" 

"To  get  an  order  compelling  Governor  Stanford  here  to 
answer  the  question  I  put  to  him." 

"Ah!"  said  the  reporter.  "It  is  a  pleasant  day  for  a 
walk.  Yes — you  will  enjoy  it.  I  think,  if  I  may,  I  will 
walk  along  with  you.  I  can  show  you  the  sights." 

They  went  down  to  the  Federal  building.  Little  time  was 
lost.  Justice  Stephen  J.  Field  and  Justice  Sawyer  promptly 
decided  that  Governor  Stanford  need  not  answer  the  ques- 
tion he  had  been  asked,  nor  apparently  any  other  questions 
that  were  disagreeable  to  him.  It  was  a  lovely  day,  but 
contrary  to  the  reporter's  prediction,  the  commissioners  did 
not  seem  to  enjoy  their  excursion. 

The  next  morning  the  hearing  was  resumed.  Governor 
Stanford  did  not  answer  the  question.  So  far  as  the  Na- 


104  STORIES    OF    THE    GREAT    RAILROADS 

tional  Pacific  Railroad  Commission  of  1887  was  concerned 
— that  august  body  appointed  by  the  President  of  the 
United  States  and  clothed  with  dignity  and  such  extraordi- 
nary authority — the  question  was  never  answered. 

And  yet  it  was  a  question  upon  which  rested  a  matter  of 
grave  concern  to  the  government  of  these  United  States, 
and  of  direct  personal  interest  to  every  citizen  therein. 
The  Central  Pacific  Railroad  owed  to  the  treasury  of  the 
United  States  more  than  $50,000,000,  being  an  original  loan, 
and  the  interest  thereon. 

Of  this  sum  the  company  was  endeavoring  to  cheat  the 
government.  In  violation  of  its  explicit  contract  and  agree- 
ment, it  had  declined  to  meet  the  payment  of  the  interest 
long  overdue.  Essentially  its  attitude  was  that  the  laws  of 
the  nation  and  the  practice  of  good  faith,  incumbent  upon 
all  others,  were  not  valid  upon  itself. 

The  first  question,  therefore,  was  whether  a  corporation 
practically  created  by  the  government  could  defy  its  creator 
and  maintain  in  respect  to  itself  a  condition  of  anarchy. 

Ostensibly  the  first  plea  of  the  company  was  that  it  was 
too  poor  to  pay — a  plea  that  the  government  and  the  com- 
mission and  the  entire  nation  knew  perfectly  well  to  be  a 
lie.  It  was,  moreover,  a  lie  having  in  it  a  certain  touch  of 
impudence  that  aggravated  the  company's  myriad  other  of- 
fenses, for  it  was  annually  refuted  in  all  men's  eyes  by  the 
company's  own  reports.  The  business  of  the  commission 
was  to  put  that  lie  on  record,  and  to  expose  something  of 
the  vast  diversion  of  the  company's  funds  from  the  paying 
of  its  just  debts  to  the  making  of  great  fortunes  and  to  other 
purposes  far  more  detestable. 

What  did  Governor  Stanford,  at  Sacramento,  draw  the 
money  for?  And  how  did  it  happen  that  the  books  of  the 
company  offered  no  explanation  of  the  transactions?  Le- 
gitimate business  enterprises  do  not  pay  out  money  without 


ROM  AN  I  1C    DAYS   IN     !•:. \KI.V    CALIFORNIA  10 

ad( -(piate   bookkeeping,  nor   without  the  material    for  an 

audit,  ^hould  one  he  required. 

Hou  did  it  happen  that  the  e  sinister  entries  were  among 

hundred-     imilarly  unsupported  and  unexplained  ? 

I  low  came  it  that  millions  upon  millions  of  dollars  had 
thu^  vanidied  from  the  coffers  of  this  company? 

That,  the  recipient  of  the  most  lavish  and  extravagant 
bounty  from  the  nation,  it  had  returned  upon  its  benefactor 
a  contemptuous  disregard  of  all  legal  obligations,  seizing 
the  bounty  for  private  aggrandizement  and  using  one  un- 
warranted privilege  to  get  another? 

That    its    management,    from    the    iir  I    secret,    predatory, 

and  dishonest,  had  been  able  to  do  as  it  pleased  under  all 
kinds  of  administrations?  How  did  all  this  come  about? 

We  shall  do  very  well  to  go  into  this  story  because  now 
we  can  begin  to  see  clearly  what  it  means  and  will  mean  for 
us.  This  is  no  chapter  of  ancient  history  that  we  can  notice 
or  neglect  as  we  please.  Here  is  something  started  that  as 
uiely  as  the  earth  revolves  will,  before  long,  bring  us  up 
with  a  round  turn,  jostle  us  out  of  our  national  compla- 
,  and  compel  us  against  our  wills  to  revolutionize  our 
national  practices. 

The  men  that  built  the  Central  Pacific  and  drew  from  it 
their  k'itfantic  fortunes,  are  dead;  but  the  system  they 
founded  goes  on ;  and  now  day  by  day  we  pay  for  it  all ;  for 
the  \  urn,  the  fortunes,  the  diverted  funds,  the  dishonest 
om  tracts,  the  burned  books,  the  broken  laws,  the  pelf  and 
plunder,  the  unpaid  debts,  the  whole  great  structure  of  fraud 
—every  day  something's  taken  from  each  of  us  to  pay 
for  it. 

\Ve  pay  heavily  today  and  we  shall  pay  more  heavily  to- 
morrow. We  shall  keep  on  paying  much  today  and  more 
tomorrow  so  long  as  the  system  endures. 

We  shall  not  elude  itj.it  is  not  to  be  turned,  regulated, 
nor  checked. 


106  STORIES    OF    THE    GREAT    RAILROADS 

It  is  not  any  matter  of  theories,  doctrine,  nor  the  well- 
trained  hobby  horse.  It  is  simply  a  matter  of  cold  fact  that 
will  soon  be  thrust  upon  our  attention  in  a  way  not  to  be 
ignored,  for  it  will  come  to  us  in  our  rent  bills,  butcher  bills, 
and  grocery  bills,  telling  daily  of  increase. 

How  in  this  particular  instance  this  great  force,  no  doubt 
the  greatest  that  ever  existed  among  men,  was  organized 
and  started  on  its  way  is  a  very  marvelous  story.  From  a 
long  and  humble  study  of  its  records,  I  come  with  the  con- 
viction that,  considering  the  century  in  which  it  occurred,  it 
belongs  among  the  most  amazing  histories  of  human  activi- 
ties, to  be  ranked  with  empire  building  and  conquests.  I 
shall  not  tell  it  well,  but  even  badly  told,  it  should  seem 
something  to  think  much  about. 

How  an  enterprise  purporting  to  be  for  the  public  good 
came  to  usurp  all  the  functions  of  government ;  to  rule  great 
states,  not  nominally  nor  spasmodically,  but  as  a  definite  and 
minutely  organized  system  of  society;  how  it  inflicted  upon 
one  of  those  states  a  very  great  and  irreparable  injury;  how 
it  corrupted  all  grades  of  public  service  from  town  con- 
stabulary to  national  legislators;  how  it  was  stained  with 
crimes  ranging  from  petty  larceny  to  manslaughter;  how 
laws  and  constitution  were  nullified;  how  a  fertile  empire 
was  deprived  of  much  of  its  incomparable  resources ;  how  a 
system  enabled  one  small  combination  of  men  to  reach 
their  hands  into  a  storehouse  of  natural  wealth  and  help 
themselves ;  how  they  maintained  a  political  oligarchy  as 
autocratic  as  that  of  old  Venice  and  far  greedier ;  how  they 
abolished  government  by  majorities  and  established  govern- 
ment by  a  corporation ;  and  how  for  these  achievements  also 
we  pay  and  must  pay  cent  per  cent  and  many  times  over — 
that  is  the  story. 

All  elements  of  interest  are  here:  human,  economic, 
moral,  philosophic. 


ROMANTIC  DAYS  IN  EARLY  CALIFORNIA  107 

Take  first  the  men  that  created  this  gigantic  instrument 
of  evil — what  a  study!  Good  men,  in  their  way,  not  bad; 
each  a  perfect  expression  of  a  certain  system  and  a  certain 
ideal;  each,  no  doubt,  with  a  code  and  standard  of  morals 
to  which  he  believed  himself  to  adhere;  each  highly  re- 
spected and,  according  to  the  existing  system,  respectable; 
all  following  out  logically  the  tuition  of  their  times;  not 
much  different  from  other  men,  no  worse  and  no  better ;  like 
other  men  the  product  of  conditions;  brought  up  to  accept 
without  one  question  the  essential  morality  of  the  dollar 
hunt;  trained  to  it,  eager  for  it,  snuffing  it  like  hounds  on 
the  trail.  And  then  being  endowed  with  the  opportunity  of 
wealth,  making  of  it  (in  accordance  with  their  training  and 
the  accepted  system)  this  misuse  for  which  the  next  genera- 
tion pays  such  a  price ! 

A  curious  and  fascinating  study!  And  typical,  too 
Whatever  we  may  say,  however  hard,  after  the  nationa 
fashion,  we  may  chase  the  scapegoat,  the  fact  remains  tha 
this  one  American  railroad  enterprise  is  fundamentally  no 
very  different  from  other  railroad  enterprises.  Somethin 
of  the  price  we  are  paying  for  this  we  pay  for  the  others 
Only  here  it  happens  that  we  can  see  with  startling  clearne 
every  step  and  its  consequences  to  us;  we  can  make  t 
actors  repeat  all  the  scenes ;  we  can  see  the  deed  and  the  r 
suit.  And  that  rarely  happens. 

We  should  note  something  else.  The  men  of  this  story 
began  very  poor  and  very  obscure.  All  had  been  penniless 
adventurers  starting  in  life  with  no  wealth  but  their  hands 
and  their  wills.  They  rose  to  eminence,  almost  inconceiv- 
able wealth,  and  colossal  power. 

Achievements  of  this  order  have  long  been  held  up  to  us 
as  the  most  admirable;  our  young  men  have  been  pointed 
to  them  as  to  the  chief  and  highest  aims  of  life;  the  win- 
ners in  this  race  have  had  praise  and  honor. 


108  STORIES    OF    THE    GREAT    RAILROADS 

We  have  not  often  an  opportunity  to  see  exactly  how 
great  fortunes  are  quickly  gathered  and  how  this  exalted 
goal  of  ours  is  won.  Then  this  is  a  very  unusual  chance; 
we  should  not  neglect  it.  We  can  see  now  what  this  for- 
tune-getting really  is  and  what  it  means  for  the  rest  of  us, 
for  the  physical  and  moral  stamina  of  the  nation — for  in- 
stance, national  honor  and  political  safety. 

All  is  here,  turned  up  for  your  instruction,  link  by  link; 
not  told  by  me,  the  poor  story  teller ;  told  in  the  records  and 
in  the  towering  facts. 

All  through  I  must  remind  you  hourly  that  the  course  of 
these  fortunes  from  your  pockets  to  the  pockets  of  these 
four  men  is  clearer  than  day ;  you  can  actually  see  the  hands 
passing  to  and  fro,  transferring  your  means;  not  once  but 
all  the  time,  today,  tomorrow,  and  always,  so  long  as  we 
keep  the  system,  taking  your  money.  Because,  as  you  may 
see  here,  these  fortunes  are  not  fortunes  alone ;  once  estab- 
lished at  the  public  expense,  they  cease  not  day  and  night  to 
draw  the  means  of  life  from  those  that  need  it  and  to  amass 
it  upon  those  that  need  it  not. 

So.  And  the  scene  being  made  ready,  let  us  bring  in  the 
characters  of  the  story. 

Of  the  four  men  that  founded* the  Central  Pacific  system, 
one  stands  out  conspicuous.  The  rest  are  rather  common- 
place types ;  you  can  find  men  like  them  anywhere  about  the 
country  now.  We  grow  them  in  herds,  and  until  fortune 
in  their  own  despite  puts  much  money  into  their  purses,  we 
think  lightly  of  them,  they  being  money  grubbers  and  among 
the  dullest  of  God's  creatures. 

But  Huntington  was  different:  there  was  always  some- 
thing tigerish  and  irrational  in  his  ravenous  pursuit  of 
money  that  made  him  interesting.  He  was  always  on  the 
scent;  he  struck  and  clawed  at  money  as  men  long  starving 
would  strike  and  claw  to  get  food,  gorging  and  making 
strange  sounds. 


ROMANTIC  DAYS   IN   EARLY    CALIFORNIA  109 

The  others  got  money  for  what  money  would  buy  for 
them:  power,  position,  ease,  enjoyment,  travel,  luxury,  and 
applause.  This  man  got  it  for  its  own  sake,  piling  it  up  be- 
hind him  as  he  reached  out  his  long  arms  for  more,  using 
the  power  of  one  million  only  to  secure  another;  cold, 
shrewd,  relentless,  getting  money  and  defending  his  hoard 
with  a  kind  of  snarling  ferocity — a  most  extraordinary 
figure ! 

About  him  the  whole  story  revolves — Collis  Potter  Hunt- 
ington;  he  dominated  all. 

We  can  easily  see  now  why  he  selected  the  others.  One 
was  a  man  of  details,  systems,  and  accounts;  one  was  a 
smooth,  adroit  politician,  able  to  throw  over  any  transac- 
tion, however  questionable,  a  glamor  of  respectability  and 
statesmanship;  one  was  a  good  builder  and  a  born  com- 
mander of  men. 

But  Huntington  himself  was  at  all  times  chief,  because 
he  was  so  made,  I  suppose — a  big  man  physically,  six  feet 
in  height,  broad  shouldered,  with  muscles  so  strong  that  he 
could  lift  a  barrel  of  flour  by  the  chines  and  set  it  upon  his 
shoulder;  a  frame  like  a  grizzly  bear,  incapable  of  fatigue, 
delighting  in  labor  as  other  men  delight  in  ease,  delighting 
in  his  strength  and  the  use  of  it,  abounding  in  health,  and 
full  of  the  love  of  combat. 

Mentally  he  seems  to  have  been  the  incarnation  of  the 
idea  of  gain,  and  particularly  the  chilliest  aspect  of  that  idea 
that  has  been  called  a  product  of  New  England.  To  trade 
with  men  and  to  outwit  them ;  to  make  them  think  he  meant 
one  thing  when  he  meant  another ;  to  mine  and  undermine 
to  add  always  to  his  store ;  to  take  in  much,  to  pay  out  little 
this  was  the  substance  of  his  philosophy.  His  earliest 
activities  were  devoted  to  its  practice;  there  was  something 
insatiable,  even  beyond  American  precedent,  in  his  avid  pur-  , 
suit.  Nothing  could  withstand  him:  "methought  if  the 


110  STORIES    OF    THE    GREAT    RAILROADS 

great  wall  of  China  were  to  arise  across  his  path,  he  would 
attack  it  with  his  nails." 

He  had  almost  no  schooling  and  needed  none;  school- 
house  education  would  have  been  a  handicap  to  him.     In  his 
habits  he  was  generally  exemplary;  a  man  without  a  vice, 
without  a  weakness,  without  tolerance  for  vice  or  weakness 
in  others;  rugged,  abstemious,  and  looking  upon  luxury  as 
;  a  kind  of  crime.     To  him  life  was  very  simple.     It  was  to 
jwork  without  ceasing  and  to  regard  as  essentially   right 
Whatever  was  necessary  to  secure  money,  and  essentially 
wrong  whatever  wasted  money. 

•In  this  he  was  perfectly  sincere  and  perfectly  honest.    He 
i  could   not   conceive   that  there   could  be   anything   wrong 
about  getting  money  through  business  or  through  the  devel- 
i  :>ping  of  an  enterprise  of  the  kind  that  with  easy  consciences 
live  have  called  "legitimate."     It  was  wrong  to  break  into  a 
safe,  to  pick  a  pocket,  or  to  forge  a  note  of  hand ;  it  was  not 
wrong  to  manipulate  stock  deals  nor  to  cheat  the  govern- 
ment nor  to  "influence"  a  legislature  if  conditions  made  "in- 
fluence" necessary. 

He  had  no  sense  of  humor,  which  was,  no  doubt,  a  for- 
tunate omission  in  his  make-up;  and  with  a  kind  of  naive 
sincerity  he  believed  that  a  man's  right  to  anything  consisted 
in  his  ability  to  keep  it  from  other  men — a  recrudescence  of 
jungle  creed  that  should  interest  all  students  of  reversion- 
ary types. 

He  was  an  ill  man  to  cross.  Once  he  left  Washington, 
traveled  by  rail  to  the  Missouri  River,  thence  by  stage  coach 
more  than  a  thousand  miles  in  peril  of  Indians,  floods,  and 
the  roads,  for  the  pleasure  of  orally  expressing  his  opinion 
of  a  contractor  struggling  in  the  mountains  to  lay  a  piece  of 
track.  For  some  hours  the  sound  of  his  big,  harsh  voice 
rang  through  the  canons,  conveying  objurgations;  having 
relieved  his  system  of  which,  he  instantly  wheeled  about, 
and  traversed  plains  and  mountains  straight  to  Washington. 


ROMANTIC  DAYS  IN   EARLY   CALIFORNIA  111 

As  he  grew  in  wealth  he  grew  in  contempt  of  weaker  men 
until  he  was  a  kind  of  modern  imperator,  quelling  and  domi- 
nating with  his  look  and  his  presence  and  to  che  last  years 
of  his  life  accustomed  to  unquestioned  sway. 

He  was  born  October  22,  1821,  in  the  hamlet  of  Harwin- 
ton,  Litchfield  County,  Connecticut,  a  region  where  in  his 
time  the  struggle  for  life  was  hard  and  primitive.  His 
father  was  so  penurious  that  he  was  called  a  miser,  a  name 
that,  considering  the  time  and  place,  seems  of  peculiar  signif- 
icance; but  his  mother  possessed  unusual  gifts  and  exalted 
character.  At  fourteen  he  turned  out  to  shift  for  himself, 
first  for  a  year  as  a  farmer's  boy  on  a  wage  of  $7  a  month 
and  board  and  clothes.  Characteristically,  he  saved  from 
this  meager  income  $84  and  had  it  when  he  returned. 

"Why,  that's  all  the  money  you  received  for  the  whole 
year's  work,"  said  somebody  to  whom  he  showed  his  hoard. 

"Exactly,"  said  Huntington,  "that's  the  reason  I  didn't 
save  any  more."  * 

Even  then,  it  was  as  if  the  strong  jaws  and  great  teeth 
gripped  money  and  would  not  be  unclosed  upon  it.  All  his 
days  he  never  received  wages  and  never  made  a  profit  with- 
out laying  by  something,  pinching  himself  to  save,  and  toil- 
ing for  money  with  a  kind  of  fanatical  desperation.  Thrift, 
thrift,  the  much  bepraised  virtue !  No  man  ever  had  more 
of  it. 

From  the  farm  he  entered  a  country  store  as  clerk ;  then 
to  New  York  City  whence  he  peddled  watch  findings,  walk- 
ing or  driving  over  much  of  the  United  States,  a  young 
Yankee  peddler  sharpening  his  wits  against  many  minds 
and  learning  to  surpass  them  in  cunning. 

In  the  South  once,  he  saw  a  chance  for  profit  in  what  is 
called,  I  believe,  "note  shaving."  He  bought  for  a  very  low 
price  a  lot  of  doubtful  notes  that  a  man  had  taken  in  ex- 


1  Bancroft's  "Life  of  C.  P.  Huntington,"  p.  13. 


112  STORIES    OF    THE    GREAT    RAILROADS 

change  for  patent  clocks,  and  went  out  and  collected  the 
money  and  kept  it. 

After  some  years,  he  made  his  way  to  Oneonta,  Otsego 
County,  New  York,  where  his  brother  Solon  had  a  store. 
He  was  there  as  his  brother's  partner  when,  in  1849,  the 
news  came  of  the  gold  discoveries  in  California.  At  once 
he  determined  to  join  the  rush  to  the  new  country;  not  to 
dig  gold,  for  he  was  never  so  much  of  a  fool,  but  to  trade 
with  the  new  population  in  the  gold  fields,  and  at  high  prices 
sell  it  what  it  must  have. 

He  had  $1,200  he  had  saved  from  his  business  ventures; 
with  that  he  started  for  California  by  way  of  the  Isthmus 
of  Panama.  There  he  was  delayed  three  months,  waiting 
for  a  vessel  to  take  him  north  on  the  Pacific  side.  He 
wasted  no  time.  His  first  exploit  was  to  transport  his  fel- 
low passengers  on  the  river  Chagres  (this  was  before  the 
days  of  the  Panama  Railroad)  and  his  next  to  enter  actively 
into  trade  with  the  natives  and  the  halted  emigrants.  In 
these  operations  he  walked  twenty  times  across  the  Isthmus, 
bought  and  sold  a  trading  schooner,  and  made  $4,000. 

A  sailing  vessel  took  him  to  San  Francisco,  whence  he 
pushed  on  to  Sacramento,  then  of  12,000  inhabitants,  and  a 
place  of  great  importance  because,  being  near  the  gold  fields, 
it  was  a  headquarters  for  the  miners.  He  had  a  capital  of 
$5,000,  most  of  which  he  had  invested  in  hardware  and 
miners'  supplies.  A  tent  was  his  first  wareroom;  in  it  he 
began  to  sell  goods  and  to  make  money,  added  other  tents 
until  he  had  five,  and  then  got  him  a  store.  Anything  that 
people  must  have  and  he  could  buy  for  little  and  sell  for 
much  was  in  his  line.  Once  he  cornered  the  shovel  market 
(rare  stroke  in  a  mining  region!)  and  made  the  miners  pay 
dearly  for  shovels ;  once  he  bought  old  bars  of  steel  at  one 
cent  a  pound,  and  when  quartz  mining  came  in  and  men 
must  have  steel,  sold  his  purchase  (with  which  he  had  filled 
his  back  yard),  getting  for  most  of  it  $1  a  pound. 


ROMANTIC  DAYS  IN  EARLY  CALIFORNIA  113 

Men  called  him  "Old  Huntington/'  when  he  was  not 
thirty,  because  he  was  always  serious,  always  full  of  busi- 
ness, always  intent  upon  the  money  for  which  he  hungered 
and  thirsted. 

After  some  years,  he  took  into  partnership  his  near  neigh- 
bor, Mark  Hopkins,  a  native  of  Henderson,  New  York,  an 
older  man,  methodical  and  exact.  Hopkins  kept  the  ac- 
counts and  the  stock  in  good  condition ;  Huntington  sold  the 
goods. 

The  firm  prospered;  Huntington  &  Hopkins  became  a 
name  well  known.  For  the  head  of  the  house,  men  in  Sac- 
ramento had  a  peculiar  respect  after  his  achievement  with 
the  shovels  and  the  bar  steel;  a  town  full  of  traders  and 
speculators  saw  here  a  master  of  chance  and  one  that  looked 
far  ahead. 

Indeed,  he  did  seem  for  a  time  to  be  prescient,  spying  out 
needs  long  in  advance  and  supplying  them  at  the  top  of  the 
market ;  and  yet  to  one  primal  necessity,  then  most  apparent 
to  all  about  him,  he  was  indifferent  until  it  came  to  force 
fortune  into  his  hand — a  fact  that  would  prove  (if  any 
proof  were  necessary)  the  fortuitous  nature  of  achievement, 
how  little  there  is  in  the  assertion  of  superior  intelligence, 
and  how  little  control  men  have  over  the  opportunities  of 
success. 

All  this  time  the  attraction  of  the  gold  fields  was  drawing 
every  year  great  hordes  of  emigrants  to  California. 

You  know  all  that  story,  how  almost  over  night  San 
Francisco,  from  a  lonely  station  by  an  empty  bay,  grew  to 
be  a  metropolis ;  how  the  mountains  were  gashed  by  armies 
of  miners ;  how  sudden  camps  ^filled  the  wastes ;  how  towns 
supplanted  the  camps ;  how,  in  the  face  of  appalling  difficul- 
ties, more  and  more  men  and  women  were  leaving  the  east- 
ern states  for  California. 

By  three  ways  they  could  risk  their  lives  to  reach  it :  They 
could  undergo  the  voyage  around  Cape  Horn,  17,000  miles, 


114  STORIES    OF    THE    GREAT    RAILROADS 

at  all  times  a  passage  of  frightful  hardships  and  in  the 
Antarctic  winter  season  offering  scarcely  two  chances  in 
five  of  security;  they  could  go  down  to  the  Isthmus  and 
make  their  way  across  Panama  or  Nicaragua,  thence  going 
North  on  the  Pacific  as  they  could  find  shipping;  or  by 
wagons  they  could  attempt  the  overland  journey,  threading 
unknown  plains,  hideous  deserts,  and  the  snows  of  two 
mountain  ranges. 

No  other  chapter  of  our  history  is  so  picturesque  as  this ; 
for  all  its  brilliant  literature  it  seems  imperfectly  celebrated. 
For  the  first  thousand  miles  of  the  overland  journey,  the 
way  was  among  hostile  Indians;  if  the  emigrants  escaped 
these,  they  were  exposed  to  death  from  starvation  or  thirst 
on  the  deserts,  or  to  freezing  among  the  mountains.  From 
the  Missouri  River  until  their  slow  wagons  lumbered  down 
the  last  slopes  into  the  smiling  Sacramento  valley,  hardly  one 
mile  of  their  passage  was  without  its  separate  peril. 

Yet  in  one  year  (so  it  is  said),  30,000  persons  left  the 
eastern  states  and  faced  the  horrors  of  that  journey  of  2,500 
miles,  unequalled  in  all  the  migrations  of  men.  Sometimes 
they  were  a  year  or  more  upon  the  way;  so  often  in  their 
ignorance  or  inexperience  they  met  with  disaster  that  the 
plains,  at  the  beginning  untracked,  came  to  have  defined 
trails  marked  in  white  bones  of  oxen  and  of  men. 

At  St.  Louis,  Jefferson  City,  St.  Joseph,  Atchison,  Leav- 
enworth,  finally  at  Omaha  in  Civil  War  days,  the  travelers 
would  gather  with  their  wagons  and  for  better  protection 
form  themselves  into  companies,  well  armed,  being  at  last 
taught  caution  by  so  many  reports  of  tragedies.  At  the 
first  sign  of  Indian  attack,  the  wagons  would  be  swept  into 
a  circle  for  a  fortification,  the  women  and  children  in  the 
center,  the  men  crouching  behind  the  wagon  boxes  with 
their  rifles.  Thus  beleaguered  they  would  endure  a  siege 
sometimes  of  hours,  sometimes  of  days,  very  likely  to  be 


ROMANTIC  DAYS  IN   EARLY   CALIFORNIA  115 

overwhelmed  at  last  by  the  number  of  the  savages,  or  by 
thirst  if  they  were  caught  far  from  water. 

Even  if  they  beat  off  their  mortal  foes  they  might  be  lost 
in  the  alkali  desert  and  wander  miserably  until  they  per- 
ished; or  be  trapped  by  the  snow  in  the  mountains.  The 
name  of  a  beautiful  lake  in  the  Sierras  preserves  one  such 
terrible  story  from  among  many  that  are  forgotten.  There 
in  the  pass  the  Donner  party  from  Illinois,  sixty  persons, 
was  overtaken  by  the  Sierra  winter,  and  after  such  terrible 
sufferings  as  have  since  literally  filled  a  book  of  its  mishaps, 
only  a  few  of  its  members  escaped  starvation.2 

Naturally,  as  the  traffic  increased,  the  routes  became  bet- 
ter recognized  and  something  like  system  began  to  appear. 
Emigrants  for  Oregon  and  the  North  and  sometimes  men 
for  the  gold  fields  went  up  the  Missouri  River  in  steamboats 
to  the  head  of  navigation  and  followed  thence  the  old  Lewis 
and  Clark  trail,  shortening  the  overland  journey. 

Lines  of  stagecoaches  were  established,  and  at  last  came 
men  like  John  Butterfield  and  Ben  Halliday,  organizing  the 
business  of  travel.  Butterfield  chose  the  southern  and 
easiest  route ;  from  St.  Louis  by  way  of  El  Paso  he  turned, 
as  it  were,  the  flank  of  the  mountain  ranges,  and  his  coaches 
went  bowling  through  to  San  Francisco  in  twenty-one  days. 

Meantime  the  railroads  were  creeping  westward  and  all 
men  that  could  think  saw  the  great  transcontinental  line 
close  at  hand  and  inevitable  from  the  sheer  force  of  so  great 
a  necessity.  It  was  a  very  old  project;  before  the  discovery 
of  gold,  before  California  was  an  American  possession,  men 
had  advocated  it.  I  find  a  curious  record  of  a  public  meet- 
ing held  in  Dubuque,  Iowa,  as  far  back  as  1838,  at  which  a 
civil  engineer  named  John  Plumbe  spoke  for  a  railroad  to 
the  Pacific  and  showed  how  it  could  be  built — the  first  of 
many  such  meetings. 


*  This  is  the  story  that  suggested  "Gabriel  Conroy"  to  Bret  Harte. 


116  STORIES    OF    THE    GREAT    RAILROADS 

Thomas  H.  Benton  devoted  much  of  his  life  to  ardent 
support  of  this  cause.  A  Pacific  railroad  convention3  was 
held  at  St.  Louis  in  1849;  Stephen  A.  Douglas  presided. 
Two  years  later,  a  Pacific  railroad  bill  was  introduced  in 
the  United  States  Senate.  In  1853,  Congress  appropriated 
$150,000  for  a  preliminary  survey  and  $190,000  the  next 
year  for  additional  surveying  work.  Both  the  Republican 
and  Democratic  conventions  of  1856  demanded  the  railroad 
and  by  that  time  the  legislatures  of  eighteen  states  had  in- 
dorsed it. 

In  California  many  railroads  had  already  been  built  on 
paper  and  one  or  two  had  a  physical  existence,  all  looking 
toward  the  transcontinental  route.  One  of  the  tangible  kind 
was  actually  opened  in  1856  from  Sacramento  to  Folsom. 

The  San  Francisco  and  Marysville  dates  from  1857,  and 
the  Western  Pacific,  which  undertook  to  build  from  San 
Jose,  fifty  miles  south  of  San  Francisco,  to  Sacramento,  is 
almost  as  old.  These  are  names  with  which  we  shall  have 
to  deal  hereafter. 

Most  of  the  materials  for  railroad  building  were  brought 
at  great  expense  around  Cape  Horn  in  sailing  vessels;  yet 
despite  the  cost  that  this  entailed,  all  the  roads  honestly  con- 
structed and  operated,  became  at  once  profitable. 

As  to  the  transcontinental  line,  most  men  thought  it  would 
come  by  the  southern  and  easy  route,  where  Butterfield's 
coaches  rolled  over  moderate  grades  and  the  level  alkali 
desert.  We  know  now  that  this  was  the  opinion  of  Colonel 
Thomas  A.  Scott,  of  the  Pennsylvania,  one  of  the  world's 
ablest  railroad  constructors.  In  this  direction  several  lines 


8  At  another  Pacific  Railroad  convention  held  at  Philadelphia 
in  1850,  Joel  B.  Sutherland  advocated  a  national  railroad,  and  as 
if  by  inspiration  pointed  out  the  evils  that  would  result  from 
private  ownership.  "No  man  living,"  he  concluded,  "ought  to 
have  the  power  of  building  this  road  vested  in  him  and  his  heirs 
— nor  should  any  company  have  that  grant  made  to  it."  This  man 
seems  to  have  been  a  prophet 


KC:/I  ANTIC  BAYS   IN    EARLY    CALIFORNIA  117 

were  already  heading  from  the  East.  Enterprises  and  plans 
were  not  lacking;  what  really  was  needed  was  capital,  for 
want  of  which,  and  for  no  other  reason,  California  was 
still  without  the  transcontinental  railroad  when  the  new 
decade  began. 

Sacramento,  thriving  with  the  growth  of  the  state  and 
already  a  metropolis,  hoped  for  a  northerly  route,  but  ad- 
mitted the  barrier  of  the  Sierras.  Theodore  D.  Judah,  a 
very  able  civil  engineer,  who  had  directed  the  construction 
of  the  best  California  railroad,  was  the  first  to  attack  this 
notion.  He  seems  to  have  had  his  original  impetus  from 
Daniel  W.  Strong,  an  old  pioneer  of  Dutch  Flat,  who  from 
his  own  observations  was  convinced  that  more  than  one  way 
was  open  through  the  mountains.  In  the  course  of  twenty 
lonely  excursions  among  the  canons,  Judah  found  what 
seemed  to  his  trained  eye  a  perfectly  feasible  route  to  the 
East  by  the  way  of  Dutch  Flat  and  the  Truckee.  He  had 
in  Sacramento  a  friend,  James  Bailey,  a  jeweler,  to  whom 
he  explained  his  conclusions  and  measurements,  and  in  the 
spring  of  1861,  with  Bailey's  co-operation,  he  called,  at  the 
St.  Charles  Hotel,  a  meeting  of  merchants,  who  listened  ap- 
parently without  much  enthusiasm  to  his  appeal  that  they 
should  subscribe  funds  for  a  definite  survey  and  secure  the 
transcontinental  line  for  Sacramento. 

Bailey,  warmly  indorsing  the  project,  introduced  Judah 
to  Huntington  and  Hopkins.  They  studied  Judah's  scheme 
and  were  convinced  by  him  that  is  was  practicable.  Hunt- 
ington brought  in  Leland  Stanford,  of  the  Sacramento  firm 
of  Stanford  Brothers,  a  rising  politician,  and  Republican 
leader,  and  Charles  Crocker,  at  that  time  a  dry  goods  mer- 
chant but  with  experience  in  developing  coal  mines  and 
directing  construction  work. 

These  and  others  organized  on  June  28,  1861,  the  Central 
Pacific  Railroad  Company  of  California,  capital  stock  $8,- 
500,000.  Stanford  was  President ;  Huntington,  Vice-Presi- 


118  STORIES    OF    THE    GREAT    RAILROADS 

dent;  Hopkins,  Treasurer;  Bailey,  Secretary;  and  Judah, 
Engineer.  Stanford,  Huntington,  Hopkins,  Crocker,  and 
Judah  took  150  shares  each.  The  par  value  of  each  share 
was  $100.  There  were  a  few  other  subscribers,  among 
them  Strong,  the  two  Lambards  and  Samuel  Brannan,  of 
Sacramento.  Ten  per  cent  of  the  subscriptions  was  paid  in 
cash;  this  gave  to  the  company  a  working  capital  sufficient 
for  its  first  movements,  which  were  not  in  railroad  building 
but  in  lobbying. 

Huntington  and  his  three  friends  were  the  real  directors 
of  the  enterprise.  None  of  them  was  of  more  than  very 
moderate  wealth  even  for  that  day;  the  four  being  worth 
.together  not  a  quarter  of  a  million  dollars.4  The  only  cash 
they  ever  invested  in  their  enterprise  was  represented  by 
their  stock  subscriptions.  Even  their  payments  on  this  ac- 
count are  extremely  doubtful,  and  so  far  as  can  now  be 
ascertained,  never  exceeded  the  first  ten  per  cent. 

With  the  money  thus  secured,  Huntington  and  Judah 
went  to  Washington,  where  they  planned  and  carried  out  a 
wonderful  campaign  against  Congress.  Of  Mr.  Hunting- 
ton's  tactics  there  we  shall  have  to  say  much  hereafter ;  all 
we  need  now  to  observe  is  that,  considering  the  times,  the 
amount  of  loot  secured,  and  the  terms,  the  achievement 


4  According  to  the  sworn  statement  made  by  each  of  the  four 
and  accompanying  the  memorial  to  Congress  asking  for  subsidies, 
Leland  Stanford  and  his  brother  were  worth,  in  1862,  $32,950; 
Charles  Crocker  was  worth  $25,000;  Mark  Hopkins  was  worth 
$9,700;  C.  P.  Huntington,  $7,222;  and  the  firm  of  Huntington  & 
Hopkins,  $34,115;  total,  $108,987.  Some  years  later,  before  a  com- 
mittee of  Congress,  Mr.  Huntington  testified  that  in  1862  each  of 
the  firm  was  worth  several  hundred  thousand  dollars  and  the 
total  wealth  of  the  four  at  that  time  was  about  $1,000,000.  Un- 
luckily, such  discrepancies  under  oath  are  common  in  testimony 
about  railroads.  In  Sacramento,  it  is  said  that  each  of  the  four  put 
in  cash  and  credit  to  about  $100,000  and  strained  his  credit  to  do 
that;  but  in  the  suit  of  Robinson  versus  the  Central  Pacific  the 
assertion  was  directly  made  that  Messrs.  Stanford,  Huntington, 
Hopkins,  and  Crocker  never  paid  for  their  stock  and  their  total 
investment  in  the  enterprise  was  nothing. 


ROMANTIC  DAYS   IN   EARLY   CALIFORNIA  119 

stands  unequaled  in  the  history  of  lobbying.  It  is  not  at 
all  wonderful  that  Congress  was  induced  to  grant  aid  to  a 
Pacific  railroad ;  Congress  had  been  ready  for  years  to  grant 
such  aid,  and  now  the  exigencies  of  the  Civil  War  had  made 
the  railroad  an  imperative  necessity.  What  is  wonderful  is 
that  Congress,  discarding  many  better  and  fairer  plansf 
should  have  made  with  these  four  adventurers  a  contract 
that  bestowed  upon  them  such  vast  and  unjustified  advan- 
tages. About  this,  men  will  marvel  so  long  as  they  read 
the  story. 

The  bill  passed  both  houses  and  was  signed  July  1,  1862. 
In  substance  and  effect  the  government  built  the  road  with 
public  funds,  made  of  it  a  present  to  the  four  gentlemen, 
and  loaded  them  besides  with  great  fortunes. 

The  wording  was,  of  course,  somewhat  different.  First 
there  was  given  to  the  Central  Pacific  Railroad  Company 
every  alternate  section  of  public  land  designated  by  the  ode 
numbers  to  the  amount  of  five  alternate  sections  for  each 
mile  of  the  railroad,  and  on  each  side  of  it.  You  will  not 
understand  this  unless  you  are  familiar  with  the  mystery  oi 
railroad  grants,  so  I  will  translate  it  for  you.  A  section 
as  I  have  explained  in  a  previous  chapter,  is  640  acres.  The 
bill  set  apart  a  strip  of  land  twenty  miles  wide,  ten  miles 
on  each  side  of  the  track  for  the  whole  distance,  and  then 
gave  to  the  company  half  of  the  land  in  that  twenty-mile 
strip,  or  6,400  acres  of  the  people's  land  for  every  mile  oi 
railroad.  This  land  was  worth,  at  the  lowest  possible  esti- 
mate, $15,000,000. 

The  bill  then  provided  that  as  soon  as  the  company  should 
complete  forty  miles  of  track  the  government  should  issue 
to  it  bonds  of  the  United  States  of  $1,000  each,  bearing  6 
per  cent  interest,  for  each  mile  of  railroad  constructed,  as 
follows : 

For  every  mile  in  valley  or  level  land,  $16,000  in  bonds. 

For  every  mile  in  the  foothills,  $32,000  in  bonds. 


120  STORIES    OF    THE    GREAT    RAILROADS 

\      For  every  mile  in  the  mountains,  $48,000  a  mile. 

\  On  the  route  planned  by  the  Central  Pacific,  the  value  of 
this  subsidy  was  $27,500,000.  Total  gift  from  the  govern- 
hient  so  far,  $42,500,000. 

J  Meantime  Lelancl  Stanford,  President  of  the  Central 
Pacific,  had  been  elected  Governor  of  California,  and  under 
his  care  the  legislature  passed  many  bills  for  the  company's 
benefit,  most  of  them  allowing  the  towns  and  counties  to 
contribute  to  the  company's  coffer,  which  they  promptly  did. 
San  Francisco  gave  $400,000;  Placer  County,  $250,000; 
Sacramento  County,  $300,000,  all  in  subscriptions  to  the 
stock;  and  the  state  of  California  gave  a  liberal  donation. 

With  all  these  and  still  other  resources  in  hand,  the  com- 
pany saw  that  it  was  in  a  condition  to  begin  actual  opera- 
tions, and  on  January  8,  1863,  with  much  ceremony,  ground 
for  the  new  line  was  broken  at  Sacramento,  the  legislature 
being  present  in  a  body  and  Governor  Stanford  digging  the 
first  shovelful  of  earth.  Contracts  for  the  first  eighteen  miles 
were  let  to  nine  different  persons.  Beyond  that  and  so  far 
as  the  138th  mile,  Mr.  Crocker  was  the  sole  contractor. 
Thirty-one  miles  of  track  had  been  laid  up  to  September, 
1864. 

Although  the  grants  to  the  company  under  the  Act  of 
July  1,  1862,  had  been  so  amazingly  liberal,  Mr.  Hunting- 
on  was  not  satisfied  with  them,  and  believed  that  still  more 
could  be  extracted  from  a  government  so  generous  with  the 
people's  money.  Partly  in  conjunction  with  the  interests 
back  of  the  Union  Pacific,  he  planned  a  new  raid  on  Con- 
gress. •  The  Union  Pacific  had  been  authorized  to  build- 
west  from  the  Missouri  River  to  meet  the  Central  Pacific, 
and  had  received  similar  grants.  Mr.  Huntington  particu- 
larly wished  to  have  the  act  of  1862  enlarged  about  the  bond 
gift.  As  it  stood  it  read  thus : 

"The  issue  of  said  bonds  and  delivery  to  the  company 
shall  ipso  facto  constitute  a  first  mortgage  on  the  whole  line 


ROMANTIC  DAYS   IN   EARLY   CALIFORNIA  121 

"of  the  railroad  and  telegraph,  together  with  the  rolling 
stock,  fixtures,  and  property  of  every  kind  and  description, 
and  in  consideration  of  which  said  bonds  may  be  issued." 

Mr.  Huntington  maneuvered  so  well  and,  in  his  own  apt 
phrase,  "explained  things"  so  successfully  to  congressmen 
that  he  got  a  new  act  passed  in  July,  1864,  drawn  apparently 
in  every  respect  to  his  will.  It  changed  the  first  mortgage 
of  the  government  bonds  into  a  second  mortgage,  and  al- 
lowed the  company  to  issue  its  own  first  mortgage  bonds  to 
the  same  amount  as  the  government  bonds.  It  also  changed 
the  land  grant.  The  strip  of  donated  land  on  each  side  ofl 
the  track  was  now  made  forty  miles  wide  instead  of  twenty,! 
and  the  number  of  acres  bestowed  upon  the  company  in-\ 
creased  from  6,400  to  12,800  for  every  mile  constructed.] 
In  the  old  act  mineral  land  in  the  donated  tracts  had  been 
exempted.  Mr.  Huntington  had  that  changed  so  that  min- 
eral lands  containing  coal  and  iron  were  included  in  the  gift 
to  the  company,  the  reason  being  that  much  good  coal  lay 
along  the  route.  Bonds  of  both  kinds  were  also  allowed  to 
be  issued  in  advance  of  construction. 

Land  grant  value  now  was  $30,000,000. 

The  new  law  virtually  made  the  government  guarantee 
the  company's  first  mortgage  bonds,  and  the  company  now 
began  to  issue  such  bonds  and  to  sell  them.  Mr.  Hunting- 
ton  went  to  Boston  and  sold  a  great  many  at  par  and  inter- 
est; and  some  at  a  premium. 

Mr.  Crocker  pressed  on  with  the  building,  Mr.  Hunting- 
ton  buying  the  material  in  New  York  and  shipping  it  around 
the  Horn.  He  was  a  shrewd  and  successful  buyer ;  of  some 
of  his  exploits  in  that  line  Bancroft,  his  fervent  biographer, 
says  they  should  be  judged  by  the  exigencies  of  business, 
rather  than  by  the  code  of  ethics5 — a  comment  that  will 
strike  the  present-day  reader  of  these  annals  as  extremely 


•Bancroft's  "Life  of  C  P.  Huntington,"  p.  49. 


122  STORIES    OF    THE    GREAT    RAILROADS 

well  merited.  One  of  the  achievements  thus  defended  by 
casuistry  was  to  trick  the  rail  manufacturers  into  furnishing 
60,000  tons  of  rails  at  abnormally  low  rates,  and  another  to 
trick  a  ship  broker  into  supplying  twenty-three  vessels. 

As  fast  as  the  road  was  built,  it  was  opened  and  began 
to  do  business  and  to  make  money.  For  the  construction 
from  the  eighteenth  to  the  138th  mile,  Mr.  Crocker  received 
a  little  more  than  $10,000,000  in  bonds  and  stocks,  besides 
the  cash  that  was  advanced  to  him.  This  liberal  reward, 
averaging  more  than  $82,000  a  mile  for  work  in  regions 
presenting  no  great  difficulty,  he  did  not  keep,  but  for  a 
peculiar  reason,  to  be  explained  hereafter,  bestowed  upon 
others.  After  the  138th  mile,  another  contractor  assumed 
the  work  and  carried  it  to  completion. 

The  strange  and  interesting  details  of  this  part  of  the  story 

are  to  be  told  in  a  succeeding  chapter,  but  to  give  some 

notion  now  of  what  went  on,  I  may  say  that  the  company 

(charged  the  government  at  the  mountain  rate,  $48,000  a 

[mile,  for  building  on  thirty  miles  of  level  or  nearly  level 

ground  near  Sacramento,  and  at  the  foothill  rate,  $32,000 

a  mile,  for  many  miles  of  level  building  in  the  valley  east  of 

the  Sierras.     This  is  the  origin  of  the  familiar  saying  in 

/California  that  the  Central  Pacific  was  the  strongest  corpo- 

/  ration  in  the  world  because  it  had  moved  the  Sierra  Ne- 

I  vada  Mountains    thirty    miles.     It   not    only    made    these 

I  charges,  but  collected  for  them,  although  Mr.  Judah,  the 

1  engineer,  refused  to  assent  to  the  transaction. 

Meantime,  most  of  the  other  stockholders  than  the  four 
congenial  gentlemen  of  Sacramento  had  been  frozen  out, 
and  in  the  process  the  interests  of  Bailey  and  Judah,6  who 
were  the  real  projectors  of  the  road,  were  callously  sacri- 


8  Theodore  D.  Judah  died  in  1863  on  his  way  to  Washington. 
He  left  some  very  interesting  letters,  which  subsequently  threw  light 
upon  certain  phases  of  the  early  history  of  the  road  when  it  was 
investigated  by  the  Pacific  Railroad  Commission. 


ROMANTIC  DAYS  IN   EARLY   CALIFORNIA  123 

ficed.  Mr.  Huntington's  proposal  was  that  they  should  buy 
or  sell.  As  they  had  no  money  to  buy  with,  the  alternative 
was  like  a  pistol  at  their  heads.  Still  they  hesitated.  To 
encourage  decision,  Mr.  Huntington  rode  one  day  along  the 
entire  line  and  stopped  all  work,  a  privilege  he  had  retained 
under  the  contract.  Menaced  with  the  failure  of  the  enter- 
prise, the  outsiders  were  driven  to  sell,  and  Huntington, 
Hopkins,  Stanford  and  Crocker  secured  the  ownership, 
which  they  retained  uninterruptedly  for  sixteen  years. 

They  increased  the  capital  stock  first  to  $20,000,000,  and 
finally  to  $100,000,000,  of  which  $62,000,000  was  issued. 

This,  by  a  clever  device  that  I  shall  describe  later,  they 
divided  among  themselves  without  paying  for  it  one  cent. 
They  had  in  sight : 

Stock   (issued  up  to  1873) $62,000,000 

Land     30,000,000 

Government  bonds    27,500,000 

Their  own  guaranteed  bonds 27,500,000 

Donations,  about   2,000,000 


Total    $149,000,000 

And  their  railroad  was  steadily  pushing  eastward. 

Only  one  prospect  clouded  their  felicity. 

The  Union  Pacific  Railroad,  backed  by  a  band  of  specu- 
lators as  greedy  but  not  nearly  so  fortunate,  was  now  (with 
government  money)  building  its  line  westward  from 
Omaha.  For  three  or  four  hundred  miles  its  way  led 
through  a  country  flat  as  a  board,  close  to  water,  and  in 
sandy  soil  easily  dug.  It,  therefore,  progressed  with  great 
rapidity,  sometimes  laying  as  much  as -ten  miles  of  track  in 
a  day. 

The  act  of  1864  had  authorized  the  Central  Pacific  to 
build  eastward  to  a  junction  with  the  Union  Pacific,  where- 
ever  that  might  be.  At  first  the  four  partners  had  assumed 
that  this  junction  would  be  far  to  the  eastward,  allowing 
them  goodly  mileage  and  many  fat  bonds,  but  the  swift  ad- 


124  STORIES    OF    THE    GREAT    RAILROADS 

vance  of  the  Union  Pacific  began  to  annoy  them,  and  by 
1867  they  were  thoroughly  alarmed.  The  Union  Pacific 
was  approaching  the  mountains.  If  it  should  thread  them 
first,  the  Central  Pacific  would  lose  the  fattest  part  of  its 
contract  with  the  government;  also  the  best  of  the  joint  haul 
when  the  roads  should  be  united. 

•  There  ensued  the  maddest  chapter  in  all  railroad  history. 
The  two  roads  entered  into  a  race,  tearing  into  the  work 
before  them  regardless  of  any  question  of  cost,  working  day 
and  night  with  relay  gangs.S-  On  the  line  of  the  Central 
Pacific  12,000  men  dug,  blasted,  tunneled,  and  graded,  urged 
to  greater  haste  by  the  incessant  goading  of  the  overseers, 
To  add  to  the  mileage,  and  therefore  to  the  compensation, 
much  of  the  railroad  had  been  laid  out  on  the  plan  of  a 
corkscrew  or  a  ram's  horn ;  but  this  could  not  now  be  reme- 
died, and  the  builders  followed  the  line,  pressing  on  without 
a  moment's  halt. 

This  was  where  the  so-called  difficulties  of  the  work 
arose.  Nothing  about  the  grades  was  particularly  difficult 
if  the  work  had  been  normally  done,  the  steepest  gradient 
being  116  feet  to  the  mile,  which  had  already  been  equaled 
by  the  Baltimore  and  Ohio.  But  the  insane  haste  made  the 
task  arduous  and  often  dangerous.  The  builders  did  not 
wait  for  a  completed  road,  but  sent  gangs  of  men  far  in  ad- 
vance, sometimes  forty  miles,  hauling  with  wagons  all  the 
material,  as  well  as  supplies  for  the  men.  Often  the  wagon 
roads  had  first  to  be  cut  through  the  forest.  Camps  were 
built  and  rebuilt  in  a  vast  solitude  as  the  lines  of  attack 
moved  on ;  even  water  had  to  be  hauled  forty  miles. 

It  was  the  wild  romance  of  railroading.  Winter  came 
on,  the  terrible  Sierra  winter  with  its  phenomenal  snow- 
falls, but  to  the  world's  amazement  the  work  never  stopped. 
In  the  tunnels  the  men  worked  securely;  otherwise  they 
toiled  on  in  the  canons  where  there  was  less  of  snowfall, 
•ind  great  fires  constantly  burning  kept  them  from  freezing. 


ROMANTIC  DAYS  IN  EARLY   CALIFORNIA  125 

In  the  dead  of  winter,  rails,  machinery,  cars,  even  locomo- 
tives in  pieces,  were  dragged  hundreds  of  miles  on  wagons, 
traversing  roads  heavy  and  badly  made,  threatened  with  im- 
minent disaster  from  the  snowslides  and  the  storms. 

The  problem  of  the  commissariat  for  the  working  army 
was  often  acute;  stores  must  be  brought  up  and  deposited 
far  in  advance  of  the  line.7  Over  the  snow  the  builders 
hauled  to  the  ill-omened  Donner  lake  the  materials  for  forty 
miles  of  track,  three  locomotives,  and  forty  cars,  besides  all 
the  stores  for  so  many  men,  the  region  being  destitute  of 
human  habitation  or  of  any  supplies  save  fuel.  At  that 
time  the  end  of  the  continuous  track  was  fifty  miles  away. 

Of  human  life  the  builders  were  equally  prodigal.  Men  I 
froze  or  slipped  down  the  steep  canon  to  their  death,  other  j 
men  took  their  places,  and  the  work  went  on. 

More  than  one  squad  a  foreman  saw  as  they  clung  to  the 
hillside,  above  them  the  white  mountain  heads,  below  them 
the  canon  down  300  feet,  perhaps  more,  deep  snow  at  the 
bottom,  snow  above  and  about  them,  while  they  dug  and 
blasted  into  the  frozen  earth.  Then  there  would  be  a  shout, 
a  rumbling  sound  that  the  watchers  knew  too  well,  the  im- 
pending field  of  snow  would  rush  down  the  mountain,  a 
great  cloud  of  snow  dust  would  arise  with  a  sullen  roar,  and 
when  the  air  was  clear,  peering  down  the  canon  they  would 
see  a  wide  spreading  of  tumbled  snow  on  the  white  expanse 
and  maybe  a  man's  arm  sinking,  or  a  pickax,  and  the  squad 
was  gone. 

In  the  spring  when  the  snow  melted  they  might  find  the 
bodies ;  or  the  freshet  might  carry  them  off  to  beat  them  to 
pieces  on  the  bowlders.  It  was  but  fifteen  or  twenty  China- 
men gone.  What  mattered  ? 

Once  there  were  two  white  men  standing  side  by  side  in 
a  cutting.  So  they  were  seen  one  instant ;  the  next,  an  ava- 


7  Governor    Stanford's    testimony    before    the    Pacific    Railroad 
Commission. 


126  STORIES    OF    THE    GREAT    RAILROADS 

lanche  poured  into  the  cutting  and  hid  them  from  view. 
Weeks  afterwards  the  cutting  was  dug  out;  the  men  still 
stood  there  erect,  leaning  on  their  shovels,  dead — two  grisly 
monuments  to  the  mileage  race  of  the  Union  and  Central 
Pacific. 

In  April,  1869,  they  were  almost  within  sight  of  the 
enemy's  lines.  Before  them  was  Ogden,  the  goal  of  the 
race,  in  the  great  valley  between  the  Rocky  and  Sierra  Ne- 
vada ranges.  In  the  fury  of  competition  both  companies 
far  overshot  the  mark.  The  Union  Pacific  had  its  graders 
one  hundred  miles  west  of  Ogden;  the  Central  Pacific  had 
its  advance  line  forty  miles  beyond  its  track  layers.  Only 
the  iron  actually  put  into  position  counted  in  the  race. 

On  the  last  day,  ten  miles  of  track  were  laid;  on  April 
28th,  they  struck  the  Union  Pacific  line  fifty-three  miles 
west  of  Ogden;  and  May  10th,  they  drove  the  golden  spike 
that  cemented  the  two  roads.  The  Union  Pacific  had  won  by 
fifty-three  miles.  Subsequently,  the  Central  Pacific  bought 
of  the  Union  Pacific,  at  a  high  price,  the  over  lapping  road8 
and  charged  this  and  its  own  superfluous  building  and  all 
the  other  lunacies  of  the  race  into  the  capital  on  which  we 
now  have  the  pleasure  of  paying  interest.  But  the  road 
was  built,  and  the  four  promoters  of  Sacramento  had  a 
mileage  sufficient  to  justify  their  bond  issues.  They  now 
sat  down  to  figure  the  cost  and  to  pass  it  to  the  public  in  a 
needless  and  increasing  burden  that  the  public  has  patiently 
borne  ever  since. 

The  world  rang  with  the  exploit;  the  country  rejoiced; 
California  was  superbly  happy.  That  May  day  she  hailed 
as  her  deliverance ;  she  was  now  truly  of  the  country,  bound 
to  it  with  more  than  iron  cords.  The  new  communication, 
reducing  her  distance  by  three-fourths,  brought  her  into  the 
house  of  states;  all  would  now  be  well  with  her.  So  her 


•Pacific  Railroad  Commission  Report. 


ROMANTIC  DAYS  IN  EARLY   CALIFORNIA  127 

people  said.  And  yet,  so  tangled  and  contradictory  are  the 
affairs  of  men,  there  was  at  the  same  time  laid  upon  her  a 
heavy  and  bitter  curse  that  to  this  day  she  has  never  been 
able  to  shake  off. 

The  rapid  building  of  the  Central  Pacific  through  the 
mountains  was  for  the  times  a  great  exploit.  Naturally  it 
has  since  been  far  surpassed  as  an  achievement  of  engineer- 
ing and  construction.  Abating  nothing  of  admiration  for 
the  physical  performance,  it  is  time  now  to  reflect  that  it 
was  also  a  monstrous  triumph  of  greed,  fraud,  and  corrup- 
tion ;  that  it  might  have  been  had  at  a  fraction  of  its  cost  to 
the  public ;  and  that  it  might  very  easily  have  been  a  blessing 
instead  of  a  blight  to  that  rich  country  of  which  it  was 
ecstatically  miscalled  the  Gateway. 

For  the  Gate  was  quickly  closed  and  before  it  appeared 
the  grim  figure  of  Collis  Potter  Huntington,  one  hand  hold- 
ing the  key  and  the  other  stretched  out  taking  toll.  The 
physical  figure  of  Huntington  is  no  longer  there,  but  the 
Gateway  remains  closed  and  before  it  are  his  successors, 
still  busily  taking  toll. 

How  much — do  you  think? 

From  the  day  the  Gate  was  erected  and  closed,  down  to 
the  present  year,  first  Mr.  Huntington  and  his  associates 
and  then  their  successors  have  taken  and  divided  more  than 
$700,000,000  in  unjust  tolls,  all  from  the  people  of  the 
United  States,  who  so  kindly  erected  the  Gate  across  their 
own  highway. 

With  that  sum,  the  people  could  have  built  ten  railroads 
from  the  Missouri  River  to  the  Pacific. 

And  they  need  have  had  no  closed  Gateway  and  no  toll 
takers  fattening  upon  an  enforced  and  arbitrary  tribute. 


CHAPTER  VI. 

UNCLE  MARK  PACKS  UP  THE  BOOKS. 

John  Miller  came,  a  young  man,  from  Virginia  to  Califor- 
nia, in  1870,  and  found  employment  with  the  California 
Pacific  Railroad  as  clerk  and  ticket  agent  at  the  South  Val- 
lejo  station.  He  was  capable  and  industrious;  and  capable 
railroad  men  were  few  in  California. 

A  year  later  when  some  men  in  the  railroad  way  at  Sacra- 
mento wanted  an  efficient  accountant,  they  learned  of  Mil- 
ler, sent  for  him,  looked  him  over,  and  thought  he  would  do ; 
so  he  went  up  to  Sacramento  and  entered  upon  his  new  job, 
which  was  better  than  his  old  one  had  been.  It  was  with 
the  Contract  and  Finance  Company,  of  which  a  kindly  old 
man  known  as  Uncle  Mark  Hopkins  was  the  president. 
The  office  was  right  over  Huntington  &  Hopkins'  hardware 
store  in  K  Street,  and  across  the  hall  were  the  offices  of  the 
Central  Pacific  Railroad,  of  which  Uncle  Mark  Hopkins 
was  treasurer  and  director. 

Young  Mr.  Miller's  task  was  to  assist  the  paymaster  of 
the  Contract  and  Finance  Company,  and  to  keep  books — 
not  the  main  books  of  the  concern,  for  these  were  always 
kept  by  William  E.  Brown,  the  company's  secretary,  but 
certain  other  books  that  he  called  auxiliary  books. 

To  build  and  keep  in  repair  the  lines  of  the  Central  Pa- 
cific and  of  railroads  with  other  names,  was  the  business  of 
the  Contract  and  Finance  Company,  but  the  books  that 
young  Mr.  Miller  kept  did  not  contain  a  complete  record  of 
these  matters ;  they  related  only  to  minor  phases  of  the  work 
in  hand. 

Young  Mr.  Miller  was  observant  as  well  as  studious,  and 
when,  some  months  after  he  entered  the  office,  he  observed 

128 


UNCLE  MARK  PACKS  UP  THE  BOOKS  129 

Mr.  Brown  to  be  employed  diligently  upon  the  main  books 
of  the  concern,  the  nature  of  this  employment  aroused  your 
Mr.  Miller's  curiosity.  He  took  occasion  when  Mr.  Brown 
was  absent  to  examine  the  books  that  Mr.  Brown  kept,  and 
found  them  to  contain  matter  of  much  interest. 

In  fact,  the  more  he  examined  them,  the  more  interested 
he  became.  They  were  books  that  recorded  the  building 
and  repairing  of  railroad  lines  for  the  Central  Pacific — what 
the  work  actually  cost,  and  what  had  been  paid  for  it1 — and 
might,  therefore,  be  deemed  to  be  among  the  most  juiceless 
and  unattractive  volumes  in  the  world ;  but  young  Mr.  Mil- 
ler found  them  remarkably  diverting. 

Finally,  he  became  so  much  interested  that,  like  the  care- 
ful student  he  was,  he  made  from  day  to  day  a  series  of 
abstracts  and  memoranda  of  the  matter  wherewith  he  was 
being  entertained,  and  these  he  took  home,  perhaps  for  more 
deliberate  enjoyment  in  quiet  hours. 

He  did  not  let  Mr.  Brown  nor  anyone  else  know  of  the 
literary  treasures  he  had  found,  but  just  read  and  made  ab- 
stracts and  copies  and  put  them  away. 

I  am  not  to  suppose  that  he  knew  Charles  Reade's  "Hard 
Cash,"  that  he  was  familiar  with  the  character  of  Young 
Skinner  therein,  nor  that  suspicion — evil  sprite! — had 
been  aroused  in  his  breast  by  Reade's  somewhat  cruel  jest 
about  man  as  a  cooking  animal,  being  a  cooker  of  books, 
but  unconsciously  he  came  to  enact  rather  closely  a  vivid 
passage  in  a  sensational  novel,  the  while  he  furnished  a  sig- 
nificant chapter  in  railroad  history. 

Of  a  sudden,  one  day  in  September,  1873,  Mr.  Brown  en- 
tered the  office  and  hailed  young  Mr.  Miller  with  glad 
tidings. 

"The  Contract  and  Finance  Company  has  elected  you  to 
the  office  of  secretary,"  said  Mr.  Brown.  "I  have  resigned 


1  Pacific  Railroad  Commission  Report,  testimony  of  Miller. 


130  STORIES    OF    THE    GREAT    RAILROADS 

and  am  going  to  Europe.  And  now  here  is  a  set  of  new 
books  for  you  to  go  to  work  with." 

Young  Mr.  Miller  was  duly  gratified.  He  took  posses- 
sion of  the  nice  new  books  and  observed  that  they  had 
already  been  opened  in  Mr.  Brown's  handwriting,2  each  ac- 
count starting  with  a  balance  apparently  carried  over  from 
the  old  books. 

About  noon  he  went  forth,  as  was  his  habit,  to  his  mid- 
day repast,  leaving  Mr.  Brown  in  the  office  with  the  old 
books  and  with  the  new.  When,  an  hour  later,  he  returned 
he  found  Mr.  Brown  there  and  the  new  books  there,  but 
the  old  books  had  disappeared,  nor  did  young  Mr.  Miller 
ever  see  them  again. 

So  far  as  the  world  knows,  only  two  other  persons  had 
that  pleasure. 

Some  time  after  Mr.  Miller  had  departed  in  search  of 
luncheon,  in  came,  for  no  particular  purpose,  young  Mr. 
Yost.  Mr.  Yost  was  private  secretary  to  Mr.  Leland  Stan- 
ford, who  was  President  of  the  Central  Pacific  and  one  of 
the  owners  of  the  Contract  and  Finance  Company.  Mr. 
Yost  saw  the  old  books.  He  saw  them  in  the  hands  of 
Uncle  Mark  Hopkins.  And  Uncle  Mark,  with  his  coat  off, 
was  busily  at  work  packing  those  books  into  boxes  and 
fastening  the  boxes  with  screws.8 

The  next  day  Mr.  Brown  started  for  Europe.  There- 
after all  trace  of  the  old  books  was  lost ;  also  all  trace  of  the 
books  of  Charles  Crocker  and  Company,  the  contracting 
firm  to  which  the  Contract  and  Finance  Company  was  the 
successor. 

By  some  persons  the  loss  was  grievously  mourned,  these 
being  chiefly  persons  that  had  certain  lawsuits  and  needed 
the  books  for  evidence.  But  their  grief  availed  them  noth- 


1  Pacific  Railroad  Commission  Report,  testimony  of  Miller,  pp. 
2880-92. 

*Ibid.,  testimony  of  D.  Z.  Yost,  p.  2717. 


UNCLE  MARK  PACKS  UP  THE  BOOKS  131 

ing,  even  when  it  led  them  to  cause  the  arrest  of  the  most 
eminent  officers  of  the  Central  Pacific  and  when,  in  a  dirty, 
common  police  court,  these  gentlemen  were  compelled  to 
declare  their  ignorance  about  the  books  that  never  were 
found.  According  to  a  current  belief  in  California,  these 
books  now  repose  at  the  bottom  of  the  River  Seine,  which 
is  in  France;  and  that  seems  a  very  strange  place  indeed — 
for  books  to  repose  in. 

For  about  a  year  young  Mr.  Miller  discharged  the  duties 
of  secretary  to  the  Contract  and  Finance  Company,  being 
also  made  secretary  to  the  Western  Development  Company, 
another  very  nice  company  with  much  the  same  owners  and 
exactly  the  same  purposes. 

Some  suspicion  then  arose  that  his  books  and  accounts 
were  not  in  the  admirable  and  apple-pie  order  to  be  expected 
of  first-class  accountants  and  really  nice  companies,  and 
Mr.  J.  O'B.  Gunn,  auditor  of  the  Central  Pacific,  made  quiet 
observation  of  these  matters.  On  his  oral4  report,  young 
Mr.  Miller  was  arrested  and  indicted,  charged  with  em- 
bezzlement. We  are  not  to  conclude  off  hand  that  he  had 
been  corrupted  by  evil  example,  which  is  ever  in  wait  for 
youth,  but  only  that  he  had  grown  careless,  maybe,  or  some- 
thing of  that  kind. 

He  was  not  at  once  prosecuted,  poss*jly  because  of  his 
youth  or  good  looks.  Instead,  certain  negotiations  began, 
lasting  for  a  month,  in  which  young  Mr.  Miller  was  every 
day  in  consultation  with  the  highest  officers  of  the  Central 
Pacific,5  who  were  also,  by  a  curious  coincidence,  the  high- 
est officers  of  the  Contract  and  Finance  Company  and  its 
sole  owners. 

After  a  time,  Mr.  Miller's  wife  called  upon  former  Judge 
N.  Greene  Curtis  (who  had  once  defended  a  man  for  the 


*  Pacific   Railroad    Commission    Report,   testimony   of    Gunn,    p. 
3003. 

6  Ibid.,  testimony  of  Miller,  p.  2888. 


132  STORIES    OF    THE    GREAT    RAILROADS 

Central  Pacific)  and  engaged  him  as  her  husband's  coun- 
sel. To  him  Mr.  Miller  delivered  all  his  memoranda  and 
abstracts. 

The  trial  of  Mr.  Miller  took  place  in  San  Francisco, 
whither  meantime  the  officers  of  all  the  companies  here 
mentioned  had  been  removed.  All  the  witnesses  against  him 
were  officers  and  employees  of  the  Central  Pacific.6 

It  appears  that  the  prosecution  was  afflicted  with  a  curious 
languor,  resulting  perhaps  from  the  climate,  which  is  known 
to  be  at  times  enervating.  At  the  close  of  the  trial,  young 
Mr.  Miller  was  acquitted.  From  the  courtroom  former 
Judge  Curtis  went  straightway  to  his  room  in  the  Cosmo- 
politan Hotel,  took  all  the  abstracts  and  memoranda  that 
Mr.  Miller  had  given  to  him,  and  put  them  into  the  grate, 
where  they  were  presently  consumed7  in  a  cheerful  blaze. 

These  abstracts  and  memoranda  were  of  the  actual  cost  of 
the  work  done  by  the  Contract  and  Finance  Company,  and 
the  actual  amounts  received  therefor.8 

Young  Mr.  Miller,  thus  happily  cleared  from  blame,  dis- 
appeared from  the  public  view.  The  next  heard  of  him 
was  as  a  prosperous  farmer  and  owner  of  a  fine  ranch  in 
the  Sacramento  Valley,  and  as  a  buyer  of  coal  lands.9  As 
previously  he  had  been  an  accountant  on  a  moderate  salary, 
followed  by  a  year  of  idleness  and  (presumably)  heavy  legal 
expenses,  this  affluence  occasioned  some  remark.  Mr.  Mil- 
ler farmed  on,  nevertheless,  and  so,  by  a  figure  of  speech, 
did  the  Contract  and  Finance  Company,  the  Western  De- 
velopment Company  and  the  Central  Pacific  Company. 

All  this,  it  will  be  admitted,  is  of  itself  a  strange  and  en- 
tertaining little  narrative.  And  now  to  fit  it  into  its  true 


9  Ibid. 

1  Pacific  Railroad   Commission  Report,  testimony  of  Curtis,   p. 
3033. 

"'Ibid.,  testimony  of  Miller,  p.  2880. 
•Ibid.,  p.  2891. 


UNCLE  MARK  PACKS  UP  THE  BOOKS  133 

place  in  Southern  Pacific  history,  where,  properly  viewed, 
I  am  sure  you  will  greatly  admire  it. 

The  contracting  firm  of  Charles  Crocker  and  Company 
was  composed  of  Mr.  Charles  Crocker  and,  according  to 
his  testimony,  of  nobody  else.  Previously,  he  had  been  a 
dry  goods  merchant  in  the  Plaza  at  Sacramento  and  then, 
in  1861,  one  of  the  organizers  and  first  directors  of  the  Cen- 
tral Pacific.  He  was  the  contractor  that  built  for  that  road 
its  first  few  miles.  The  dual  capacity  of  director  and  con- 
tractor (by  which,  of  course,  a  man  must  as  director  vote 
contracts  to  himself  as  contractor)  seems  to  have  aroused 
criticism  among  the  captious  and  unsympathetic,  and  the 
next  few  miles  were  done  by  many  contractors  in 
small  bits.  When  the  undesirable  persons  had  been  frozen 
from  the  enterprise  and  the  four  of  Sacramento  had  the 
thing  in  their  own  hands,  Mr.  Crocker  resigned  from  the 
directorate,  where  he  was  succeeded  by  his  brother,  and  took 
the  contract  for  the  rest  of  the  road  from  the  thirty-first 
mile  to  a  point  near  the  state  boundary,  or  one  hundred  and 
thirty-eight  miles  from  Sacramento. 

This  contract  disappeared  with  the  books  that,  in  1873, 
young  Mr.  Yost  saw  Mr.  Hopkins  pack  into  boxes. 

So  far  as  can  now  be  ascertained,  it  must  have  been  of 
extremely  loose  terms.  No  lump  sum  was  named.  Mr. 
Crocker,  composing  the  firm  of  Charles  Crocker  and  Com- 
pany, built  the  railroad,  and  the  Central  Pacific  Company 
paid  his  bills,  whatever  they  were  and  without  question. 
This  seems  to  have  been  the  substance  of  the  arrangement. 
It  will  be  admitted  to  have  been  most  unusual. 

As  the  firm  composed  of  one  man  went  along  it  needed 
money,  which  was  supplied  to  it  (or  to  him,  as  you  prefer) 
by  the  Central  Pacific  Railroad  Company,  consisting  of  him- 
self and  three  others,  from  the  proceeds  of  bonds  that  had 
been  granted  by  the  government. 


134  STORIES    OF    THE    GREAT    RAILROADS 

He  was  supplied  also  with  the  bonds  themselves,  and  with 
the  company's  stock.  He  said  afterwards  that  for  the  first 
eighteen  miles  he  received  $250,000  in  cash,  $50,000  in  stock, 
and  $100,000  in  bonds.10 

It  is  interesting  to  note  that  for  at  least  eleven  of  these 
miles  the  Central  Pacific  Company  received  from  the  gov- 
ernment $528,000,  which  was  more  than  enough  to  build 
the  whole  eighteen. 

For  some  of  the  miles  Charles  Crocker  and  Company 
secured  as  much  as  $300,000  or  even  $400,000"  a  mile. 
For  excavating  earth  they,  he,  or  it,  received  from  40  cents 
to  $1.50  a  yard,  and  for  excavating  rock  as  much  as  $10 
a  yard.12 

In  1867,  the  one-man  firm  completed  the  one  hundred  and 
thirty-eighth  mile,  and  the  remainder  of  the  work  was  trans- 
ferred to  the  Contract  and  Finance  Company,  of  which 
young  Mr.  Miller  was  subsequently  the  secretary. 

I  said  in  my  last  chapter  that  for  a  very  peculiar 
reason,  Mr.  Crocker  did  not  retain  the  stocks  and  bonds  he 
received  for  his  work  in  constructing  the  railroad.  The 
peculiar  reason  was  that  he  turned  over  all  these  securities, 
amounting  to  more  than  $10,000,000,13  to  his  successor,  the 
Contract  and  Finance  Company,  which  immediately  dis- 
tributed them  among  its  stockholders. 

And  who  were  they? 

Messrs.  Leland  Stanford,  C.  P.  Huntington,  Mark  Hop- 
kins, and  Charles  Crocker. 


10  Pacific    Railroad    Commission    Report,    testimony    of    Charles 
Crocker,  p.  3640. 

11  Ibid.,  p.  3645. 
"Ibid.,  p.  3649. 

QUESTION:  If  I  should  recall  it  to  your  mind,  would  you  re- 
member that  the  higher  priced  excavation  was  very  much  larger 
in  number  of  yards  entered  on  your  estimate  from  which  you  re- 
ceived your  payments,  than  the  ordinary  earth? 

ANSWER:    I  do  not  remember  about  it. 

18  Pacific  Railroad  Commission  Report,  p.  3649. 


UNCLE  MARK  PACKS  UP  THE  BOOKS  135 

It  is  time  we  should  take  a  look  at  this  extraordinary 
concern,  for  the  part  it  played  in  the  affairs  of  our  railroad, 
as  well  as  its  relations  to  public  interests  now,  are  of  vital 
importance. 

The  Central  Pacific  Railroad  Company  was  organized 
under  the  constitution  and  laws  of  California,  which  for- 
bid the  stock  of  a  railroad  company  to  be  issued,  except  for 
cash  or  its  equivalent.  Not  less  than  ten  per  cent  must  be 
paid  for  when  the  railroad  is  organized,  and  the  rest  by  in- 
stallments— in  cash  or  its  equivalent. 

Also  these  laws  forbid  a  railroad  to  issue  bonds  in  excess 
of  its  stock.14 

As  fast  as  the  railroad  was  constructed,  it  was  receiving 
$48,000  a  mile  from  the  government,  and  it  was  also  autho- 
rized to  issue  its  own  bonds  for  the  like  amount,  but  it 
could  not  do  this  in  excess  of  its  stock  issue. 

Observe,  therefore,  that  it  was  obliged  to  issue  stock  be- 
fore it  could  issue  its  bonds,  and  for  the  stock  issued  it  was 
obliged  to  pay  in  cash  or  its  equivalent. 

Now,  bills  of  a  contractor  for  work  done  in  constructing 
a  railroad  are  to  that  railroad  clearly  the  equivalent  of  cash. 

The  company  had  started  with  $8,500,000  of  capital  stock. 
As  the  work  went  on  this  was  increased  to  $20,000,000  and 
finally  reached  $100,000,000,  issued  from  time  to  time  as  re- 
quired. In  1873,  the  amount  issued  was  $62,608,800. 

Naturally,  the  four  gentlemen  conducting  the  enterprise 
desired  to  get  possession  of  this  stock  (which  carried  with 
it  control  of  the  road)  and  to  get  it  without  paying  for  it. 
One  way  to  that  desirable  result  was  through  a  contracting 
agency  that  would  present  bills  for  its  work  (these  bills 
being  the  equivalent  of  cash),  accept  in  payment  thereof 
the  stocks  and  bonds  of  the  company,  and  subsequently  re- 
turn these  securities,  less  the  actual  expenses,  to  the  four 


14  See  section  456  of  the  Civil  Code. 


136  STORIES    OF    THE    GREAT    RAILROADS 

gentlemen.  The  greater  its  bills  the  more  stock  would  thus 
be  sent  upon  the  circuit.  All  that  was  needed  for  the  per- 
fection of  this  device  was  a  good  handy  pretext  for  the  final 
distribution  of  the  accumulated  securities  among  the  four 
gentlemen. 

A  firm  composed  of  one  person  could  not  very  well  per- 
form this  function,  but  to  a  corporation  it  was  easy,  because 
a  corporation  can  always  distribute  its  assets  among  its 
stockholders.  If  the  Central  Pacific  stock  composed  the 
assets  of  such  a  corporation  and  the  stockholders  among 
whom  they  were  to  be  distributed  were  the  four  gentlemen, 
how  lovely  that  would  be ! 

To  suppose  that  these  conclusions  so  obvious  to  you  and 
me  escaped  the  attention  of  the  four  wise  gentlemen  of  Sac- 
ramento were  to  wrong  their  intellectual  acumen;  only, 
since  Uncle  Mark  Hopkins'  exploit  as  a  book  packer,  the 
details  of  their  operations  are  obscure. 

Still,  you  may  care  to  note  that  in  December,  1867,  the 
Contract  and  Finance  Company  was  organized  with  a  capi- 
tal of  $5,000,000 — not  one  cent  of  which  was  ever  paid  for 
— by  three  dummy  organizers15  who  subsequently  trans- 
ferred their  stock  to  Messrs.  Stanford,  Huntington,  Hop- 
kins, and  Crocker,  and  that  this  company  received  Mr. 
Crocker's  $10,000,000  of  securities  and  properly  distributed 
them,16  where  they  would  do  the  most  good — to  Messrs. 
Stanford,  Huntington,  Hopkins,  and  Crocker. 

The  Contract  and  Finance  Company  proceeded  with  the 
construction  work  from  the  one  hundred  and  thirty-eighth 
mile  to  the  junction  with  the  Union  Pacific,  fifty-three  miles 
west  of  Ogden. 

Of  the  extravagant  expenditures  caused  by  the  insane 
race  for  mileage  with  the  Union  Pacific,  we  have  already 


15  Pacific  Railroad  Commission  Report,  testimony  of  William  E. 
Brown,  p.  2895. 

**/&».,  testimony  of  Charles  Crocker  Brown,  and  others. 


UNCLE  MARK  TACKS  UP  THE  BOOKS  137 

spoken.  How  much  other  unjustified  expense  appeared  on 
the  books  will  never  be  known. 

When  the  Pacific  Railroad  Commission  tried  to  ascertain 
the  facts,  its  expert  engineer  presented  to  it  a  statement 
that  the  entire  line  of  the  Central  Pacific  from  Sacramento 
to  five  miles  west  of  Ogden,  690  miles,  cost  to  construct, 
$32,589,117.93. 

Adding  the  $2,130,000  paid  to  the  Union  Pacific  for  the 
overlapped  parts,  this  makes  the  total  construction  cost 
$34,719,117.93,  or  $50,317  a  mile.17 

How  much  of  this,  again,  is  real,  nobody  knows,  but  if  we 
accept  it  as  veritable,  there  was  to  offset  it : 

United  States  Government  bonds $27,500,000.00 

Central    Pacific    bonds    practically   guaranteed   by   the 

government   27,500,000.00 

Land  grant18  30,000,000.00 

Assistance   voted   by   California  counties 1,000,000.00 


$86,000,000.00 

Less  alleged  cost  of  construction 34,719,147.93 

And  depreciation  of  currency19 7,000,000. 


Balance    $44,280,882.( 

In  other  words,  they  built  the  road  for  about  one-half 
the  government  subsidy,  and  pocketed  the  rest. 

Other  goodly  profits  pertained  to  these  matters,  and  on 
top  of  all,  the  Central  Pacific  Railroad  Company  delivered 
to  Charles  Crocker  and  Company,  and  the  Contract  and 


"William  E.  Brown,  Secretary  of  the  Contract  and  Finance 
Company,  testified  (see  p.  2897  of  the  Pacific  Railroad  Commission 
Report),  that  his  company  got  $86,000  a  mile  for  construction. 

8  Before  the  Forty-eighth  Congress,  Representative  Barclay  Hen- 
ley showed  that  the  whole  road  could  have  been  constructed  for 
its  land  grant  alone. 

19  Pacific  Railroad  Commission  Report,  testimony  of  Stanford, 
p.  2465. 


138  STORIES    OF    THE    GREAT    RAILROADS 

Finance  Company,  $62,000,00020  of  Central  Pacific  stock, 
and  this  treasure  trove  was  divided  as  assets  among  the 
stockholders  of  the  Contract  and  Finance  Company. 

And  who  were  they? 

Messrs.  Stanford,  Huntington,  Hopkins  and  Crocker, 
who  were  also  the  chief  owners  of  the  Central  Pacific,  who 
never  paid  a  cent  for  their  Contract  and  Finance  stock,  and 
who  by  this  device  secured  also  $62,000,000  of  Central  Pa- 
cific stock  without  paying  a  cent  for  that.21 

On  this  stock,  so  obtained,  were  declared  in  the  next  seven 
years  dividends  amounting  to  $12,000,000 — all  obtained 
from  the  contributions  of  the  public. 

When  these  matters  came  many  years  afterwards  to  be 
reviewed,  Governor  Stanford  tried  to  show  that  when  the 
construction  work  was  done,  the  Contract  and  Finance 
Company  owed  a  great  deal  of  money — several  million 
dollars,22  in  fact. 

This  statement  led  to  a  remarkable  revelation.  When 
William  E.  Brown,  former  secretary  of  the  Contract  and 
Finance  Company,  was  asked  about  the  matter,  he  said  that 


"Up  to  1873,  when  the  last  division  of  stock  took  place.  The 
progress  of  these  operations  may  be  seen  readily  from  the  follow- 
ing table  of  the  capital  stock  of  the  Central  Pacific  Railroad  Com- 
pany: 

Year  Amount 

1866 $  8,580,600 

1867 14,923,400 

1868  24,679,900 

1869 40,168,100 

1870 51,079,200 

1871  59,644,000 

1872 59,644,000 

1873  62,608,800 

a  QUESTION  :  Then  it  was  substantially,  that  the  builders  of 
the  road  under  the  contract  should  take  all  the  bonds  whatever 
character  they  were,  as  you  have  stated,  and  the  amount  of  stock 
to  authorize  you  to  issue  those  bonds  under  your  own  first  mort- 
gage? 

ANSWER:    Yes,  sir.    Pacific  Railroad  Commission  Report,  testi- 
mony of  Leland  Stanford,  p.  2646. 
32 1 'bid.,  Stanford's  testimony,  p.  2669. 


UNCLE  MARK  PACKS  UP  THE  BOOKS  139 

at  the  end  of  the  construction  period,  the  Contract  and 
Finance  Company  owed  (unquestionably  to  Messrs.  Stan- 
ford, Huntington,  Hopkins,  and  Crocker)  $1,636,000, 
against  which  it  held  the  notes  of  the  Central  Pacific  Com- 
pany for  $6,000,000,  and  that  in  payment  of  the  $6,000,000 
of  notes  the  Central  Pacific  (owned  by  the  same  men)  de- 
livered $7,000,000  of  land  grant  bonds;23  so  that  instead 
of  being  a  debtor  when  it  completed  its  work,  the  Contract 
and  Finance  Company  was  a  peculiarly  happy  kind  of  a 
creditor. 

And  what  became  of  those  $7,000,000  of  bonds  ex- 
changed for  $6,000,000  of  notes  held  against  $1,636,000 
of  debt? 

Why,  all  went  by  the  assets  route  to  the  pockets  of  the 
same  wise  and  fortunate  four,  Messrs.  Stanford,  Hunting- 
ton,  Hopkins  and  Crocker.24 

Subsequently,  all  these  assets  with  the  $62,000,000  of 
stock  obtained  for  nothing  and  all  the  other  perquisites, 
"melons,"  good  things,  grafts,  "rake-offs,"  and  clever  deals, 
were  merged  into  one  of  the  most  valuable  railroad  stocks 
in  the  world,  on  which  to  this  day  we  are  paying  the  co- 
lossal interest  charges. 

But  in  estimating  the  immediate  profits  of  the  Big  Four 
we  must  not,  to  be  sure,  overlook  the  fact  that  for  a  part 
of  the  time  of  construction,  currency  was  much  depreciated 
and  its  depreciation  added  heavily  to  the  cost  of  everything 


23  Pacific   Railroad    Commission   Report,    Brown's   testimony,   p. 

'"It  is  found  that  Messrs.  Stanford,  Huntington,  Hopkins  and 
Crocker  received  over  $142,000,000  in  cash  and  securities  through 
the  Contract  and  Finance  Company,  Western  Development  Com- 
pany, and  Pacific  Improvement  Company,  and  dividends  of  the 
Central  Pacific.  In  addition  to  this  sum  of  $142,000,000  they  also 
made  large  profits  in  the  operation  of  fifteen  or  more  companies 
which  were  directly  or  remotely  sapping  the  revenues  of  the  Cen- 
tral Pacific  Company." 

Pacific  Railroad  Commission  Report,  p.  143. 


140  STORIES    OF    THE    GREAT    RAILROADS 

that  was  bought.  But  the  real  building  work  was  done 
after  the  end  of  the  war  when  currency  was  rising  in  value 
— and  the  first  mortgages  were  gold ! 

Moreover,  to  offset  the  loss  on  currency  were  some  items 
usually  neglected  in  these  considerations. 
.  Thus,  the  road  was  operated  as  fast  as  it  was  built  as  part 
of  a  continental  rail  and  stage  line,  and  from  this  operation 
there  accumulated,  by  1869,  above  all  expense  and  interest 
charges,  close  upon  $3,000,000  of  net  profits. 

Also,  to  head  off  a  rival  line  building  eastward  to  Placer- 
ville,  the  wise  and  happy  four  built  a  connecting  wagon  road 
from  Dutch  Flat  through  the  Carson  Valley  (charged  to 
Central  Pacific  construction  account),  and  this  road  gath- 
ered for  them  at  trifling  expense  tolls  estimated  at  $3,000,- 
OOO25 — an  enterprise  that  had  the  further  advantage  of  ruin- 
ing the  rival  railroad  so  that  it  fell  by  its  own  collapse  into 
the  Central  Pacific's  possession.26 

No  sooner  was  the  first  transcontinental  railroad  line 
opened,  the  gateway  established,  and  the  toll  taker  at  work, 
than  the  four  thus  pleasantly  endowed  began  to  establish 
other  gates  to  take  further  toll.  They  had  started  with  next 
to  nothing  apiece,  and  now,  after  nine  years,  they  shared  a 
stupendous  fortune  that  was,  indeed,  much  more  than 
wealth  in  hand  since  it  was  an  infallible  and  unceasing  ma- 
chine for  gathering  more  and  still  more  wealth. 

As  they  constructed  the  .Central  Pacific,  it  stopped  at  Sac- 
ramento, ninety  miles  east  of  San  Francisco,  with  which  the 
Sacramento  river  connected  it,  as  did  also  the  Western  Pa- 
cific, another  and  earlier  railroad  project,  liberally  aided 
with  government  grants  as  an  incipient  transcontinental 
route.  The  main  line  of  the  Western  Pacific  had  its  western 
terminus  at  San  Jose,  fifty  miles  south  of  San  Francisco,  but 


28  By  Daniel  W.  Strong,  who  was  a  Dutch  Flat  pioneer  and  one 
of  the  original   founders  of  the  Central  Pacific. 
"Bancroft's  "History  of   California,"  p.   553. 


UNCLE  MARK  PACKS  UP  THE  BOOKS  141 

it  had  a  branch  to  Oakland  on  San  Francisco  Bay  and  oppo- 
site the  city. 

In  1867  the  contractors  that  had  undertaken  to  build  the 
Western  Pacific  became  "embarrassed,"  and  the  Contract 
and  Finance  Company  completed  the  road  and  took  all  of 
the  stock,  issued  and  unissued,  all  the  bonds  and  all  of  the 
land  grants  not  previously  allotted  to  the  first  contractors, 
delivering  the  whole  to  the  Central  Pacific,  composed  of 
Messrs.  Stanford,  Huntington,  Hopkins,  and  Crocker.  The 
land  grants  were  exceedingly  rich  and  the  possession  of  the 
road  thus  cheaply  secured  carried  the  Central  Pacific  from 
Sacramento  to  San  Francisco  Bay  and  gave  it  an  invaluable 
terminus.27 

Another  rival  road,  the  California  Pacific,  had  been  pro- 
jected to  build  over  the  Beckwith  pass  through  the  Sierras 
to  an  Eastern  connection.  In  1869  it  was  completing  its 
line  from  Vallejo  to  Sacramento  by  a  shorter  and  better 
route  than  the  Western  Pacific.  The  Central  Pacific  tried 
hard  to  keep  the  California  Pacific  from  entering  Sacra- 
mento, and  at  one  time  a  pitched  battle  between  the  armed 
forces  of  the  two  companies  was  imminent;  but  while  the 
contestants  were  waiting  for  a  court  decision,  the  California/I 
Pacific  stole  a  march  and  got  into  the  city.28  This  wasj  \ 
in  1870. 

Being  thus  defeated,  the  Central  Pacific  had  recourse  to 
strategy.  In  1871,  it  agreed  to  buy  the  California  Pacific 
for  $1,579,000.  It  had  previously  secured  a  contract  for  the 


27  The  true  nature  of  this  transaction  is  now  not  likely  to  be 
disclosed,  but  the  reason  for  the  first  contractors*  troubles  seems 
to  have  aroused  some  suspicion.  In  Robinson  versus  the  Cen- 
tral Pacific,  filed  in  San  Francisco  in  1876,  very  damaging  allega- 
tions are  made  concerning  the  matter,  the  substance  thereof  being 
that  the  Central  Pacific  unfairly  obtained  $2,000,000  of  Western 
Pacific  bonds  and  about  $3,000,000  of  other  valuable  properties. 
It  is  certain  that  the  Western  Pacific  cost  the  Central  Pacific  little 
and  was  an  immensely  profitable  acquisition. 

28Bancroft's  "History  of  California,"  Vol.  vii. 


142  STORIES    OF    THE    GREAT    RAILROADS 

Contract  and  Finance  Company  to  build  and  repair  certain 
sections  of  the  California  Pacific  line.  When  this  work 
was  done,  the  Contract  and  Finance  Company  presented  a 
bill  for  $1,600,000,  which  neatly  offset  the  purchase  price28 
and  left  a  margin.  Some  bonds  were  used  as  counters  in 
this  unique  deal,  but  the  substance  of  it  was  that  the  happy 
four  got  the  California  Pacific  practically  for  nothing. 

The  subtle  influences,  political  and  business,  that  were 
back  of  these  operations  were  never  revealed. 

The  happy  four  now  went  through  the  formality  of  leasing 
the  California  Pacific  to  themselves  for  $550,000  a  year, 
afterwards  increased  to  $600,000.  The  par  value  of  the 
stock  was  $12,000,000,  having  an  actual  value  of  less  than 
$3,000,000,  secured  for  practically  nothing,  and  charged  up 
to  the  public  at  $550,000  a  year. 

Twenty- four  years  later  the  sworn  value  of  this  property 
was  $1,404,935  and  all  that  time  $550,000  to  $600,000  on 
its  account  had  been  extracted  annually  from  the  public  by 
the  four  of  Sacramento. 

In  those  years  the  road  had  paid  in  rentals  alone,  $13,600,- 
000 — almost  exactly  ten  times  its  value.  For  all  of  which 
the  public  has  paid.  Moreover,  this  rental  was  charged  to 
operating  expenses,  the  public  was  required  to  make  the 
road  profitable  above  such  expenses,30  and  freight  and  pas- 
senger rates  were  and  are  based  upon  the  reasonableness  of 
such  profits ! 

Subsidiary  properties  gathered  with  the  California  Pa- 
cific, included  the  San  Francisco  and  North  Pacific  and 
the  San  Francisco  and  Humboldt  Bay  Railroads,  with  a 
nominal  capital  of  $17,200,000;  and  having  these  roads  in 
its  possession,  the  Central  held  San  Francisco  and,  indeed, 
all  California  in  its  grip,  and  could  charge  what  it  pleased. 


mlbid.,  p.  584. 

"°As  to  the  general  policy  of  these  leases,  see  Pacific  Railroad 
Commission. 


UNCLE  MARK  PACKS  UP  THE  BOOKS  143 

This  was  always  Mr.  Huntington's  idea,  to  maintain  at 
whatever  cost,  an  absolute  monopoly  of  the  traffic ;  to  allow 
the  public  no  chance  to  escape ;  and  to  control  the  state 
through  the  control  of  the  primal  necessity  of  transporta- 
tion. For  many  years  he  devoted  to  this  object  more  at- 
tention than  to  all  other  objects  together,  until  he  was 
obsessed  by  it. 

Now  he  looked  out  upon  the  field  and  saw  his  supremacy 
might  be  threatened  from  two  directions.  On  the  north, 
the  Northern  Pacific  was  slowly  advancing  from  St.  Paul; 
on  the  south,  he  was  menaced  afar  by  the  Texas  Pacific  and 
others.  He  determined  to  fortify  both  approaches. 

He  saw  that  from  the  south,  where  the  easy  routes  were, 
he  faced  most  danger.  Therefore,  as  soon  as  the  Central 
Pacific  was  completed,  he  and  his  three  friends  organized 
the  Southern  Pacific  Railroad  to  build  southward  and  seize 
the  southern  gate  of  California. 

Here  comes  in  once  more  our  old  friend  the  Contract  and 
Finance  Company. 

The  grand  secret  of  making  fortunes,  Mr.  Huntington 
had  discovered  was  to  manipulate  evidences  of  debt. 

If  you  could  bond  a  railroad  enterprise,  then  do  its  work 
at  extravagant  or  fictitious  prices,  then  take  its  bonds  in 
payment  and  its  stock  as  a  bonus,  you  had  the  public  in  debt 
to  you  and  could  always  make  the  public  pay  interest  on 
that  debt,  to  your  own  great  emolument. 

That  is  what  he  meant  when  he  said  a  few  years  before 
his  death,  "I  made  my  money  by  going  into  debt" — a  neat 
bit  of  word-play,  since  the  debt  he  went  into  was  always 
debt  on  which  he  contrived  the  public  should  pay  the  inter- 
est to  him. 

To  this  end,  the  Contract  and  Finance  Company  was  a 
perfect  instrument;  it  was,  in  fact,  even  now  at  work  in 
more  than  one  direction. 

The  Central  Pacific  owners  had  made  with  themselves,  as 
the  Contract  and  Finance  Company,  a  most  remarkable  con- 


144  STORIES    OF    THE    GREAT    RAILROADS 

tract  by  which  the  Contract  and  Finance  Company  under- 
took all  the  Central  Pacific's  repairs  and  maintenance, 
charged  10  per  cent  profit  thereon,  and  used  the  Central 
Pacific's  tools,  shops,  and  plants  in  the  work. 

This,  for  a  simple  little  piece  of  money  making  by-play, 
seems  hard  to  be  excelled. 

Having  the  same  owners,  the  Southern  Pacific  now  con- 
tracted with  itself  as  the  Contract  and  Finance  Company  for 
the  building  of  the  new  line,  and  again  the  terms  of  arrange- 
ment were  most  peculiar — and  profitable. 

For  its  immediate  uses  the  Contract  and  Finance  Com- 
pany received  through  its  owners  cash,  bonds,  coupons, 
and  other  valuable  things  from  the  Central  Pacific's  earn- 
ings and  treasury,  and  paid  interest  thereon,  some  times  as 
much  as  12  per  cent  a  year.31  It  repeatedly  raided  the 
Central  Pacific's  sinking  fund  or  other  surpluses,  obtaining 
once  $3,000,000  and  once  $5,000,000,  although  these  funds 
did  not  belong  to  the  Central  Pacific,  but  to  the  government 
and  the  people  of  the  United  States. 

With  funds  so  secured  much  railroad  line  was  built.  On 
lines  so  constructed  bonds  were  issued,  and  stock.  Bonds 
and  stock  so  issued,  were  delivered  to  the  Contract  and 
Finance  Company  in  payment  of  construction  work  done 
at  abnormal  prices.  Finally,  as  assets  of  this  company,  the 
bonds  and  stock  were  distributed  among  its  stockholders, 
who  were  the  four  happy  gentlemen  6f  Sacramento. 

In  other  words,  the  earnings  of  the  Central  Pacific,  se- 
cured by  charges  upon  the  public,  built  the  Southern  Pacific, 
and  the  Southern  Pacific  bonds,  stock  and  land  grants  were 
"velvet,"  32  for  the  four  happy  gentlemen  of  Sacramento. 


81  Pacific  Railroad  Commission  Report,  testimony  of  W.  E. 
Brown,  p.  2908. 

"Pacific  Railroad  Commission  Report,  pp.  2984,  2665,  2678,  and 
particularly  the  testimony  of  Stanford  at  p.  2665  and  of  C.  F. 
Crocker  at  p.  2999. 


UNCLE  MARK  PACKS  UP  THE  BOOKS  145 

Not  a  cent  of  the  stock  got  upon  the  market ;  it  all  went 
as  fast  as  the  presses  issued  it,  into  the  coffers  of  the  four. 
Beautiful ! 

The  Contract  and  Finance  Company  did  not  long  survive 
in  these  goodly  matters.  In  1875,  its  four  owners  took  the 
very  unusual  step  of  disincorporating  it,  which  enabled  its 
affairs  to  be  wound  up  and  its  books  destroyed. 

In  its  stead  was  organized  the  Western  Development 
Company — same  ownership  (with  the  addition  of  David  D. 
Colton),  same  purposes,33  and  $5,000,000  of  capital,  of 
which  not  a  dollar  was  paid  in. 

It  succeeded  to  the  contracts  of  the  Contract  and  Finance 
Company,  including  the  Southern  Pacific  work.  How  well 
it  fared  on  its  way  through  fertile  fields  we  may  judge 
from  the  fact  that  on  September  4,  1877,  two  years  after  it 
started,  it  distributed  among  its  stockholders  the  following 
assets  it  had  accumulated  in  its  peculiar  ministrations : 

Southern    Pacific    stock $13,500,000 

Southern   Pacific  bonds 6,300,000 

Amador  Branch  bonds 675,000 

Berkeley  Branch  bonds 100,000 

Los  Angeles  Branch  bonds 13,500 

Amador  Branch  stock 674,000 

Berkeley  Branch  stock 100,000 


Total    for   this    sitting    $21,362,500 


83  By  Commissioner  Littler — Is  it  not  true  that  the  Western 
Development  Company  is  an  instrument  by  which  Messrs.  Stanford, 
Huntington,  Crocker,  and  Hopkins  performed  work  and  furnished 
materials  to  the  Central  Pacific  Railroad  Company  and  that  they, 
as  officers  of  the  Central  Pacific  Railroad  Company,  furnished 
the  Western  Development  Company  with  funds  belonging  to  the 
Central  Pacific  Company  and  charged  a  profit  of  10  per  cent  on 
all  work  done  and  materials  furnished,  which  profit  they  appro- 
priated to  their  own  use? 

ANSWER:  I  do  not  call  that  a  true  statement  *  *  *  I  do  not 
understand  that  they  used  the  Western  Development  Company  as 
officers  of  the  Central  Pacific  but  in  their  individual  capacity. 

—  Pacific  Railroad  Commission  Report,  testimony  of  F.  S. 
T^outy,  p.  2695.  Quoted  here  also  as  a  specimen  of  the  ideas  of 
business  ethics  that  seemed  to  permeate  this  interesting  company. 


146  STORIES    OF    THE    GREAT    RAILROADS 

Fair — for  a  day's  work! 

The  contract  with  the  Contract  and  Finance  Company, 
and  later  with  the  Western  Development  Company,  was  to 
construct  and  equip  the  whole  line  of  railroad  for  $40,000 
a  mile  in  first  mortgage  bonds  "and  the  balance  in  capital 
stock" — whatever  that  might  mean,  since  the  actual  cost 
of  construction  could  not  have  exceeded  $25,000  a  mile84 
for  most  of  the  distance. 

For  this  the  fat  land  grants  from  the  federal  govern- 
ment alone  would  have  more  than  sufficed,  and  the  rich 
donations  from  local  sources  were  chiefly  additions  to  the 
profits  of  the  four.  The  state  of  California  gave  thirty 
acres  of  land  at  Mission  Bay,  San  Francisco,  a  very  valua- 
able  endowment.  The  city  of  San  Francisco  gave  $1,000,- 
000;  other  cities,  counties,  and  towns  gave  $1,002,000. 

Congress,  at  Mr.  Huntington's  instigation,  had  bestowed 
upon  the  enterprise  half  the  land  in  a  strip  forty  miles  wide 
along  its  entire  line,  or  12,800  acres  for  every  mile  con- 
structed. Much  of  this  land  was  exceedingly  rich,  but  if  it 
were  worth  no  more  than  the  government's  price  to  settlers, 
$2.50  an  acre,  the  whole  would  have  been  worth  $29,824,- 
000;  while  at  the  excessive  rate  of  $40,000  a  mile,  the 
whole  line  from  San  Francisco  to  the  southeastern  bound- 
ary of  the  state,  including  the  branches,  would  have  cost  to 
build  only  $37,000,000. 

This  was  an  arrangement  that  constituted  a  great  triumph 
of  Mr.  Huntington's  ability  in  the  lobby,  but  it  was  to  have 
overlooked-for  and  bloody  consequences. 

The  Western  Development  Company  lasted  three  years, 
when  it  followed  the  Contract  and  Finance  Company  into 
the  limbo  of  things  better  forgotten,  and  was  succeeded  by 


84  In  a  region  of  no  greater  difficulties  Receiver  Farley,  of  the  St. 
Paul  and  Pacific,  was  at  this  time  building  and  equipping  a  railroad 
on  $10,000  a  mile.  In  1877,  Jay  Gould  told  Mr.  Huntington  that  he 
built  a  branch  of  the  Union  Pacific  for  $9,500  a  mile. 


UNCLE  MARK  PACKS  UP  THE  BOOKS  147 

the  Pacific  Improvement  Company,  same  owners  (except 
one),  same  purposes,  same  capital,  same  absence  of  pay- 
ments therefor.  This  company,  inheriting  the  contracts  of 
the  Western  Development  Company,  carried  the  building 
of  the  Southern  Pacific  to  the  state  boundary  at  the  Colo- 
rado River,  and  thence  across  Arizona  and  New  Mexico, 
where  had  been  organized  by  the  same  owners  the  Southern 
Pacific  Railroad  Company  of  Arizona  and  the  Southern 
Pacific  Railroad  Company  of  New  Mexico. 

The  Southern  Pacific  of  Arizona  had  an  authorized  capi- 
tal of  $20,000,000  (none  of  which  was  paid  in35),  and  bonds 
of  $10,000,000.  The  Southern  Pacific  of  New  Mexico  had 
similarly  a  capital  stock  of  $10,000,000  (none  of  which  was 
paid  in),  and  bonds  of  $5,000,000. 

The  Pacific  Improvement  Company  built  for  the  Arizona 
road  384.17  miles,  and  for  the  New  Mexico  road  107.25 
miles.  The  contract  called  for  $25,000  a  mile  in  bonds  and 
practically  all  the  stock.80 

When  completed,  the  road  was  leased  by  its  owners  to 
themselves  as  the  Central  Pacific,  on  extravagant  terms 
from  which  the  Central  Pacific  made  great  profits  and  drove 
its  stock  toward  par. 

The  Southern  Pacific  stock,  secured  for  nothing  in  this 
deal,  is  now  worth  137.37  The  Pacific  Improvement 
Company  likewise  seems  to  have  done  a  prosperous  trade 
in  its  line.  At  a  meeting  held  April  11,  1882,  as  shown 


w  Pacific  Railroad  Commission  Report,  testimony  of  F.  S.  Douty, 
p.  2708. 


"These  leases  worked  both  ways  for  their  profit.  "They  con- 
structed 1,171  miles  of  adjunct  lines  at  a  cost  of  $27,216,931.01.  On 
account  of  that  construction,  in  addition  to  a  small  cash  payment, 
they  issued  bonds  to  themselves  to  the  amount  of  $33,722,000  and 
stock  to  the  amount  of  $49,005,800,  making  a  total  issue  of  $82,727,- 
800,  of  which  $55,531,554,  represented  inflation.  Then  as  directors 
of  the  "Central  Pacific  they  took  leases  of  their  own  lines  for  the 
Central  Pacific  for  $3,490,828.81  per  annum,  which  was  at  the  rate 
of  nearly  13  per  cent."  Pacific  Railroad  Commission  Report,  p.  143. 


148  STORIES    OF    THE    GREAT    RAILROADS 

by  its  minute  book,  it  distributed  among  its  stockholders 
these  securities  that  it  had  gathered  in  its  own  sweet  way : 

Southern  Pacific  of  Arizona  stock $19,994,800 

Southern  Pacific  of  Arizona  bonds 2,572,000 

Southern  Pacific  of  New  Mexico  stocks 6,688,800 

Southern  Pacific  of  New  Mexico  bonds 4,180,000 

Monterey  Railroad  Company  stock 284,000 

Monterey  Railroad  Company  bonds 248,000 


Total  at  this  sitting $33,967,600 

I  find  also  that,  in  1894,  it  transferred  to  the  land  depart- 
ment of  the  Central  Pacific  Railroad  property  worth  some- 
thing like  $20,000,000,  including  more  than  125,000  acres 
of  rich  land  and  125  town  sites  on  the  line  of  the  Southern 
Pacific  of  California.  From  which  I  infer  that  in  the  midst 
of  other  and  exacting  cares  the  thrifty  owners  had  not 
overlooked  the  profit  that  lies  in  knowing  where  the  sta- 
tions are  to  be  placed  when  you  lay  out  a  railroad. 

But  to  return  to  earlier  history.  While  the  Southern 
Pacific  was  reaping  bonds  and  things  as  it  moved  eastward, 
Mr.  Henry  Villard,  in  control  of  the  Northern  Pacific,  was 
rapidly  pushing  westward.  His  main  object  was  Portland, 
but  men  easily  foresaw  that  he  would  wish  to  build  a  branch 
southward  toward  San  Francisco. 

The  Central  Pacific  undertood  to  check  him  by  building 
north  a  line  called  the  California  and  Oregon  Railroad  and 
by  forming  an  amalgamation  called  the  Northern,  both  con- 
structed in  the  same  way  by  the  Western  Development  Com- 
pany or  by  the  Pacific  Improvement  Company,  on  terms  that 
filled  the  coffers  of  the  four  gentlemen  and  piled  up  capitali- 
zation and  interest  thereon. 

I  cannot  do  more  than  give  some  bare  idea  of  these  opera- 
tions by  citing  a  few  instances  from  many,  for  to  relate  all 
the  myriad  sources  of  profit  would  fill  a  great  volume. 
There  was  one  piece  of  road  103  miles  long  from  Delta, 
California,  to  the  state  line,  belonging  nominally  to  the  Cali- 


UNCLE  MARK  PACKS  UP  THE  BOOKS  149 

fornia  and  Oregon  branch  of  the  Central  Pacific's  happy 
family  and  constructed  by  the  Pacific  Improvement  Com- 
pany. On  this  the  price  charged  for  construction  was  $4,- 
500,000  in  bonds  and  50,000  shares  of  stock,  together  worth 
in  the  market  $8,340,000.  The  actual  cost  of  construction 
was  $3,505,609 ;  the  net  profit,  representing  also  an  unneces- 
sary addition  to  the  debt  load  that  we  must  pay,  was 
$4,834,391. 

To  own  a  construction  company,  a  railroad  company,  and 
a  good  reliable  printing  press,  is  better  than  to  own  a  mint. 
Nothing  can  limit  your  fortune  but  the  extent  of  your  greed. 

In  the  same  manner,  these  gentlemen  organized  the  South 
Pacific  Coast  Railroad  Company,  with  a  line  eighty  miles 
long,  on  which  the  bonded  indebtedness  was  $5,500,000 
and  the  stock  $6,000,000.  The  bonds  alone  represented 
almost  $70,000  a  mile.  All  of  the  bonds  and  all  of  the 
stock  were  taken  by  the  Pacific  Improvement  Company  for 
building  the  road,  and,  in  1886,  the  Pacific  Improvement 
Company  passed  along  all  of  these  securities  to  the  South- 
ern Pacific,  whose  owners  had  gone  through  the  formality 
of  leasing  their  property  to  themselves  on  an  arrangement 
that  left  the  rental  and  the  interest  on  the  bonds  and  divi- 
dends on  the  stock  (if  any  dividends  were  paid)  all  to  be 
dug  out  of  the  road  by  means  of  freight  and  passenger 
rates. 

Similar  processes  were  followed  with  the  Northern  and 
with  the  Northern  California.  The  Northern  was  an  ac- 
cretion of  ten  smaller  roads,  most  of  them  with  overlapping 
leases.  It  managed  to  pile  up  a  stock  issue  of  $9,182,000, 
with  bonds  at  the  rate  of  $30,000  a  mile  for  386  miles,  its 
total  mileage.  In  the  end  this  conglomerate  with  all  its 
leases  was  leased  to  the  Southern  Pacific  and  its  stock  ex- 
changed for  Southern  Pacific  stock  in  the  hands  of  the  toll 
taker,  and  the  whole  thing  dumped  on  us — who  pay. 


150  STORIES    OF    THE    GREAT    RAILROADS 

Year  after  year,  the  interests  of  these  men  spread  in  many 
directions.  They  went  into  banking,  politics,  legislation, 
land-owning,  navigation,  and  newspapers  and,  with  particu- 
larly unfortunate  results  to  the  public,  they  went  into  street 
railroads.  They  increased  their  investments  and  power 
and  turned  the  profits  made  from  one  greedy  enterprise  into 
power  to  secure  more  greedy  enterprises  and  gain  more 
profits  and  more  power. 

Sometimes  they  used  their  power  as  a  bandit  uses  his 
pistol  and  sometimes  as  a  confidence  man  uses  his  skill,  yet 
on  calm  review  it  appears  that  at  no  time  were  they  more 
than  the  successful  exponents  of  the  legitimatized  spirit  of 
their  age,  nor  doing  aught  that  was  not  sanctioned  by  the 
system  the  age  had  accepted. 

Of  their  greater  exploits  we  shall  have  to  speak  at  length 
hereafter,  but  for  your  refreshing  meanwhile,  here  is  a  little 
example  of  the  bandit  or  highwayman  style  of  business. 

We  go  back  first  to  the  stage  coach  days.  When  John  But- 
terfield's  twenty-one  day  stage  from  St.  Louis  via  El  Paso-  to 
San  Francisco  had  been  well  established,  the  business  grew 
too  great  for  an  individual  and  a  company  took  charge  of  it. 
The  Civil  War  drove  the  stages  from  the  easy  southern 
route  to  a  road  across  the  center  of  the  country,  beginning 
at  Omaha. 

With  this  change  the  company  was  re-organized,  and 
under  its  new  name,  Wells  Fargo  and  Company,  with 
Louis  McLane  of  New  York  as  its  manager,  soon  became 
an  institution  in  the  West,  operating  a  great  express  and 
banking  business  as  well  as  stage  coaches.  When  the  Cen- 
tral Pacific  was  completed,  Wells  Fargo  and  Company  en- 
tered into  an  arrangement  to  carry  on  express  operations 
over  the  railroad. 

The  next  year,  however,  1870,  the  Wells  Fargo  people 
were  dismayed  to  learn  that  Messrs.  Stanford,  Huntington, 
Hopkins  and  Crocker,  with  Mr.  Lloyd  Tevis,  had  organized 


UNCLE   MARK   PACKS   UP   THE   BOOKS  151 

the  Pacific  Express  Company  and  purposed  to  compete  for 
the  express  carrying  trade.  Competition  with  the  men  that 
owned  the  railroad  and  could  do  what  they  pleased  with 
rates  was  no  competition  at  all,  but  merely  a  game  of  stand 
and  deliver. 

The  Pacific  Express  Company  went  no  farther  than  ,to 
print  some  stationery  and  open  an  office,  when  Wells  Fargo 
and  Company  surrendered.  For  a  gift  of  one-third  of  the 
capital  stock  of  Wells  Fargo  and  Company,  the  Pacific  Ex- 
press Company  agreed  to  go  out  of  business. 

One-third  of  the  Wells  Fargo  stock  was  $3,333,333.33, 
thus  acquired  for  the  cost  of  a  bunch  of  stationery.  This 
seems  fairly  good  business. 

Afterwards  the  new  stockholders  put  up  one-third  of 
$500,000  to  develop  the  banking  end  of  the  Wells  Fargo  con- 
cern. Still  later,  $1,250,000  of  Wells  Fargo  stock  was  is- 
sued to  the  Central  and  Southern  Pacific38  (Stanford, 
Huntington,  Hopkins,  and  Crocker)  in  return  for  a  new 
traffic  arrangement,  and  the  whole  great  business  of  the 
express  company  passed  into  the  hands  of  the  railroad, 
where  it  remained  until  the  beginning  of  1910.  Then  a 
new  organization  brought  forth  fresh  melons,  more  water 
and  more  tribute  from  the  nation. 

These  I  cite  as  examples  of  the  great  profits.  But  the 
thrift  of  the  fortunate  gentlemen  despised  not  the  day  of 
small  things,  also. 

They  built  for  $40,000  a  bridge  over  the  Colorado  River, 
and  owning  it  themselves,  they  leased  it  to  the  Southern 
Pacific,  which  they  controlled,  at  $12,000  a  year,  and  this 
they  charged  into  the  railroad's  operating  expenses  and  made 
a  basis  for  rates. 


88  Pacific  Railroad  Commission  Report,  testimony  of  Lloyd  Tevls, 
p.  3123, 


152  STORIES    OF    THE    GREAT    RAILROADS 

They  bought  the  steamer  Solano,  worth  $100,000,39  and, 
owning  it  themselves,  they  leased  it  to  the  Northern  Rail- 
road, which  they  controlled,  at  $90,000  a  year,  and  they 
charged  the  $90,000  into  that  railroad's  operation  expenses 
and  made  it  likewise  a  basis  for  rates. 

Whenever  they  executed  a  neat  bit  of  graft  it  was  always 
charged  either  into  capital  or  into  operating  expenses  or 
into  both,  and  wherever  it  was  charged  there  it  remains,  and 
as  you  will  see  in  another  chapter,  we  pay  for  it. 

All  this  time  at  the  old  original  Central  Pacific  gateway 
the  takings  had  been  goodly  and  incessant.  As  soon  as  the 
cars  began  to  run  over  the  Sierra  Nevada,  the  surplus  earn- 
ings began  to  accumulate.  At  first  these  seem  to  have  been 
used  to  build  other  lines,  but  by  September,  1873,  the  busi- 
ness was  so  good  that,  in  addition  to  the  money  slipped  over 
to  side  enterprises,  there  was  plainly  enough  for  a  dividend. 
From  that  time  and  with  trfe  exceptions  of  1878  and  1879, 
the  dividends  ranged  from  6  to  10  per  cent  a  year  until 
1884. 

Then  the  dividends  stopped.  In  that  year,  1884,  the  stock 
was  worth  80  and  more,  and  for  the  first  time  its  owners 
parted  with  it.  They  sold  the  bulk  of  their  holdings  to  an 
English  syndicate  under  a  remarkable  arrangement  that  left 
the  original  holders  still  in  control  of  the  property.  After 
that  the  road  ceased  to  be  profitable.  Only  Central  Pacific 
stock  was  sold  to  the  English.  The  original  holders  re- 
tained their  stock  in  the  Southern  Pacific,  which  might  now, 
of  course,  be  deemed  to  be  a  rival  line  to  the  Central  Pacific 
— from  whose  earnings  it  had  been  built.40 

After  ten  years  had  passed  without  dividends  the  English 
stockholders  sent  over  Sir  Rivers  Wilson,  subsequently 
President  of  the  Grand  Trunk,  to  see  what  could  be  done 


89  Sworn  statement  of  A.   N.  Towne,  General  Manager  of  the 
Southern  Pacific. 

40  Congressional  Record,  48th  Cong.,  First  Session,  p.  4821. 


UNCLE   MARK   PACKS   UP   THE  BOOKS  153 

with  the  property.  To  Sir  Rivers  Wilson  a  promise  was 
made  and  faithfully  kept  that  the  English  stockholders 
should  have  one  per  cent  a  year  until  "satisfactory  arrange- 
ments" could  be  obtained  for  the  "adjustment"  of  the  com- 
pany's debt  to  the  government,  and  thereafter  two  per  cent.41 
Adjustment  is,  I  believe,  the  term  in  use  for  such  things,  but 
the  sense  in  which  it  is  employed  therein  cannot  be  its 
ordinary  signification.42  Before  this  arrangement  was  con- 
cluded, Wilson  is  said  to  have  made  a  report  on  conditions 
as  he  found  them,  and  this  report  is  said  to  have  been 
known  to  the  officers  of  the  Southern  Pacific  Railroad  Com- 
pany, and  is  also  said  to  have  contained  some  extremely 
plain  language  of  a  kind  that  would  have  been  very  inter- 
esting indeed  to  the  American  public  if  it  had  made  its 
way  into  the  press. 

The  market  price  of  the  stock  declined  until  it  reached 
7j^.  Subsequently  it  was  understood  that  the  English 
investors  had  disposed  of  their  holdings  at  the  bottom 
figures,  and  in  1899,  the  public  learned  that  the  stock  had 
found  its  way  back  to  its  original  holders. 

I  trust  that  the  essence  of  this  transaction  is  sufficiently 
clear  without  further  elaboration. 

But  to  return  to  our  chronology. 


tt  The^  Southern  Pacific  Company  versus  The  Board  of  Railroad 
Commissioners  of  California,  Defendant's  answer,  Paragraph  4. 

"For  the  attitude  of  the  Company  toward  this  just  debt,  see 
Pacific  Railroad  Commission  Report;  p.  2398,  statement  of  A.  A. 
Cohen;  p.  2544,  statement  of  A.  N.  Towne;  p.  3408,  statement  of 
Creed  Haymond,  p.  3387,  statement  of  J.  C.  Stubbs;  and  Governor 
Pattison's  report. 


154 


STORIES    OF    THE    GREAT    RAILROADS 


Here  is  a  list  of  the  dividends  paid  before  the  unfortunate 
English  came  into  the  road : 


Dividend 

Da 

te. 

Rate. 

Amount  Pa 

No. 

1 

September 

13,  1873 

3 

$1,628,265 

2 

August 

4,  1874 

5 

2,713,775 

3 

April 

1,  1875 

6 

3,256,530 

4 

October 

1,  1875 

4 

2,171,020 

5 

April 

3,  1876 

4 

2,171,020 

6 

October 

2,  1876 

4 

2,171,020 

7 

April 

2,  1877 

4 

2,171,020 

8 

October 

1,  1877 

4 

2,171,020 

9 

February 

1,  1880 

3 

1,628,265 

10 

August 

,  1880 

3 

1,778,265 

11 

February 

,  1881 

3 

1,778,265 

12 

August 

,  1881 

3 

1,778,265 

13 

February 

,  1882 

3 

1,778,265 

14 

August 

,  1882 

3 

1,778,265 

15 

February 

,  1883 

3 

1,778,265 

16 

August 

,  1883 

3 

1,778,265 

17 

January 

15,  1884 

3 

1,778,265 

$34,308,055 

The  marvelous  career  in  Congress  of  Mr.  Huntington 
and  the  Southern  Pacific  I  must  leave  to  another  article,  but 
perhaps  we  may  do  well  to  pause  here  at  1884  and  observe 
how  the  four  gentlemen  had  fared. 

They  started  in  1861  with  a  total  wealth  among  them,  ac- 
cording to  their  sworn  statements,  of  $108,987. 

In  twenty-three  years  they  had  won  $34,308,055  in  divi- 
dends on  their  original  enterprise,  had  enjoyed  the  almost 
incalculable  profits  arising  from  mechanical  million-making 
contrivances  such  as  the  Contract  and  Finance  Company 
and  the  Western  Development  Company,  and  they  and  their 
heirs  and  associates  controlled  5,906  miles  of  railroad  with 
total  capital  stocks  of  $219,000,000  and  bonds  of  $235,000,- 
000,  a  total  capitalization  of  $454,000,000. 

The  companies  they  had  founded  dominated  the  affairs 
of  ten  states  and  territories,  and  over  a  great  part  of  this 
region  exercised  an  absolute  rule  not  comparable  to  any- 
thing ever  known  under  the  guise  of  free  government  and 


UNCLE   MARK   PACKS   UP   THE   BOOKS  155 

to  be  equaled  only  by  going  back  to  the  days  of  great  con- 
querors like  Tamerlane  and  Alexander. 

In  California  it  is  not  too  much  to  say  that  the  will  of 
the  railroad  company  had  superseded  all  law,  all  govern- 
ment, all  authority,  and  thereafter  the  people  were  in  an 
anomalous  condition  where  an  irresponsible  and  self-created 
power  ruled  their  affairs. 

The  railroad  monopoly  had  become  supreme.  No  man 
could  win  position,  distinction,  or  office,  without  its  sanc- 
tion; too  often,  men  found  that  they  could  not  do  business 
nor  make  a  living  if  they  antagonized  this  great  power. 

The  rates  it  charged  for  transportation  were  always  arbi- 
trary, and  being  perpetuated  as  "vested  rights,"  remain  to 
this  day  as  curiosities  in  the  history  of  transportation.  The 
accepted  basis  of  its  rate-making  was  found  in  the  famous 
quotation : 

"What  the  traffic  will  bear." 

But  it  was  in  reality  a  dual  foundation.  What  the  traffic 
would  bear  was  one  reason  for  making  abnormal  rates; 
what  would  punish  the  railroad's  enemies  or  reward  its 
servile  friends  was  another.  The  control  of  the  highways, 
as  Hannibal  and  the  old  Romans  knew  very  well,  was  a 
greater  power  than  any  government,  armies,  laws,  majori- 
ties, or  constitutions.  The  four  of  Sacramento  held  abso- 
lute control  of  the  Western  highways,  and  out  of  it  they 
made  vast  fortunes  and  established  an  empire. 

Aside  from  this,  if  the  fortunes  made  in  the  way  I  have 
described  could  have  remained  merely  fortunes,  segregated 
and  enjoyed  by  their  owners,  we  could  read  of  them  and 
wonder  and  pass  on.  But  the  truth  is  that  the  making  of 
these  fortunes,  created  out  of  debt  and  based  in  reality  upon 
the  power  to  tax  the  public,  was  the  origin  of  a  great  and 
steadily  growing  evil,  now  become  more  menacing  than  any 
problem  any  nation  has  ever  dealt  with. 


156  STORIES    OF    THE    GREAT    RAILROADS 

Look  back  and  see.  When,  in  1880-81,  the  Southern  Pa- 
cific was  completed  across  New  Mexico,  and  leased  to  the 
Central  Pacific,  Mr.  Huntington,  always  the  controlling 
spirit,  saw  his  way  to  colossal  strides  in  railroad  combina- 
tions. Tom  Scott  had  failed  to  build  his  Texas  Pacific  to 
California  and  was  out  of  the  way.  No  other  rival  need  be 
feared  in  the  South. 

Mr.  Huntington  and  his  friends  organized  the  Southern 
Development  Company  on  the  lines  of  the  old  Contract  and 
Finance  Company  and  for  the  same  purpose. 

Through  this  concern,  and  in  other  ways,  he  built  and 
absorbed  lines  in  Texas  and  Louisiana  until  he  had  a  rail- 
road through  from  San  Francisco  to  New  Orleans,  with 
connecting  steamships  thence  to  New  York.  Then  he  ef- 
fected consolidations  of  all  the  roads  owned  and  leased  by 
the  Sacramento  Big  Four,  issued  flood  after  flood  of  stocks, 
exchanged  all  the  stock  issued  for  construction  into  the 
dividend-paying  securities  of  the  amalgamated  company, 
and  finally  massed  the  whole  into  the  Southern  Pacific  Com- 
pany of  Kentucky,  with  $74,866,463  of  preferred  and  $197,- 
849,259  of  common  stock,  paying  7  per  cent  dividends  on 
the  preferred  and  6  per  cent  on  the  common,  and  owning 
besides  $415,330,000  of  stock  in  proprietary  companies,  to 
say  nothing  of  bonds — an  exhibit  at  which  the  observer  may 
well  stand  aghast,  and  to  which  there  is  no  parallel  in  the 
world. 

For  most  of  these  stocks  no  money  was  ever  paid.  They 
represent  no  investment.  Only  clever  and  successful 
scheming. 

On  all  of  them  we  furnish  year  by  year  the  profits,  col- 
lected from  the  living  expenses  of  the  masses. 

In  this  grand  total  of  dividend-bearing  securities  is  in- 
cluded all  the  stocks  gathered  in  so  many  devious  ways  by 
the  Contract  and  Finance  Company,  the  Western  Develop- 
ment Company,  and  the  Pacific  Improvement  Company,  so 


UNCLE   MARK   PACKS   UP   THE   BOOKS  157 

that  not  one  dollar  represented  by  these  transactions  is  to- 
day without  its  direct  significance  to  you  and  me,  for  we 
furnish  those  dividends. 

How  grave  this  significance  really  is,  we  may  judge  from 
the  fact  that  within  the  last  three  years  we  have  had  the 
pleasure  of  paying  greatly  increased  rates  to  make  up  in- 
creased dividends  on  increased  stock. 

Year  after  year  increased  capitalization. 

Increased  rates  to  support  that  capitalization. 

Increased  cost  of  living  caused  by  increased  rates. 

How  long  can  we  keep  this  up? 


CHAPTER  VII. 

MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON. 

In  the  White  House  one  day: 

Mr.  C.  P.  Huntington — Mr.  President,  when  you  called  on  me 
in  New  York  for  a  subscription  for  the  campaign  there  did  I 
not  draw  a  check  to  you  for  $100,000? 

The  President  of  the  United  States — You  did,  Mr.  Huntington. 

Mr.  Huntington— Then  am  I  not  entitled  to  the  appointment  I 
asked  of  you? 

The  President  of  the  United  States— You  are,  Mr.  Huntington-, 
and  you  shall  have  it. 

Unluckily  this  dialogue  is  not  a  bit  of  imagination  nor 
an  excerpt  from  fiction,  but  part  of  an  actual  conversation. 
I  have  no  doubt  many  other  similar  conversations  have  oc- 
curred at  the  White  House  and  elsewhere.  This  is  the  only 
one  I  have  been  able  to  verify.  It  is  verified  by  the  man 
that  heard  it. 

Suppose  the  appointment  Mr.  Huntington  desired  Irom 
the  President  to  have  been  to  a  federal  judgesjiip.  Sup- 
pose the  man  he  choose  for  the  place  to  have  been  one  of 
his  attorneys  and  henchmen.  Suppose  an  issue  between  the 
people  and  the  railroad  to  come  before  this  judge. 

Toward  which  side  would  you  expect  the  judge  to  in- 
cline ? 

And  then  you  are  to  understand  that  although  this  in- 
stance of  compulsive  power  over  the  government  of  the 
nation  seems  very  startling  and  abnormal,  it  was  of  small 
moment  compared  with  the  total  power  to  which  the  rail- 
road company  attained.  ^^^ 

Beginning  in  1862,  when  Leland  Stanford  was'jjjji 
governor  of  California,  the  railroad  monopoly  sfeadily  8e- 

15° 


MR.    Ill   Ml  Nti  ION  WRITES  TO  FRIEND  COLTON  159 

veloped  upon  new  linos  what  in  the  end  became  incompar- 
ably the  ijrcatc.'.t  political  machine  ever  known. 

We  shall  say  far  too  little  if  we  merely  say  that  this  ma- 
chine dominated  the  government  of  California.  It  was  the 
government  and  all  the  branches  thereof,  not  merely  direct- 
ing but  performing. 

Discerning  men  that  wished  to  have  a  bill  passed,  a  bill 
signed,  an  appointment  made,  a  plan  adopted,  wasted  no 
time  with  the  puppets  that  nominally  held  office.  They  went 
directly  to  Mr.  Stanford  or  Mr.  Huntington  and  asked  for 
what  they  wanted.  This  was  the  custom,  even  when  the 
thing  wanted  had  nothing  to  do  with  any  railroad  interest, 
when  it  might  be  something  philanthropic  or  for  the  public 
good. 

The  real  capitol  of  the  state  was  moved  from  Sacramento 
into  the  office  of  the  Central  Pacific  in  San  Francisco. 
There  public  policies  were  shaped,  public  questions  de- 
cided, public  appointments  determined;  not  merely  for  the 
state,  but  often  for  towns  and  counties  and  occasionally,  in 
a  historic  way,  for  the  nation. 

The  organization  that  achieved  these  stupendous  results 
in  politics  came  to  be  an  overshadowing  influence  in  social 
and  business  affairs  also.  For  most  young  men  that  cher- 
ished  any  ambition  it  held  the  future  in  its  grasp;  it  coulc 
make  or  unmake. 

If  a  young  man  wished  to  distinguish  himself  in  politics 
or  in  a  public  career,  he  had  no  chance  except  by  close  alli- 
ance with  the  railroad  company;  if  he  sought  any  nomina- 
tion, he  must  seek  it  through  the  company's  agents. 

If  he  was  a  lawyer,  the  railroad  eompam^xpuld  make 
him  distinguished  and  successful,  or  it  could  <?(PPive  him  oi 
clients  and  make  him  a  failure.     If  he  wished' to  be  a  judi;e 
flie   railroad   company   chose  the  judges;  he  must  apply 
through  the  company. 


160  STORIES    OF    THE    GREAT    RAILROADS 

If  the  young  man  was  in  business,  the  company  could 
make  him  prosperous  or  it  could  ruin  him. 

If  he  published  or  edited  a  newspaper  or  a  magazine,  he 
could  obtain  subsidies  from  the  railroad  company;  or  risk 
bankruptcy  if  he  had  its  ill-will. 

The  very  position  in  society  of  his  wife  and,  therefore, 
her  comfort  and  peace  of  mind;  his  own  standing  in  the 
community,  the  position  and  to  some  extent  the  opportuni- 
ties of  his  children;  came  to  depend  chiefly  and  sometimes 
wholly  upon  his  attitude  toward  this  truly  imperial  power 
that  had  seized  the  State  of  California.1 

This  power  controlled  also  most  of  the  channels  of  public 
opinion.  Some  newspapers  and  magazines  it  owned  out- 
right and  published  in  its  interests;  hundreds  of  others  it 
controlled  through  subsidies,  the  secret  pay  roll,  advertising, 
and  passes.  Very  well  known  newspapers  and  famous 
editors  were  regularly  paid  for  their  influence;  one  editor 
was  hired  at  $10,000  a  year  merely  to  write  and  to  publish 
eulogies  of  Mr.  Stanford. 

This  power  went  into  the  church  also  and  into  the  schools. 
It  secured  the  assistance  of  clergymen,  educators,  and  his- 
torians. 

Many  a  clergyman  with  an  annual  pass  in  his  pocket  went 
about  speaking  well  of  the  railroad  and  of  the  four  men  of 
Sacramento.  If  the  pass  were  insufficient  to  get  him,  why, 
there  was  always  the  liberal  subscription  to  the  church 
charity.  Church  societies  were  not  forgotten,  nor  Sunday 
schools.  One  denomination  organized  a  league  with 
branches  all  about  the  state.  Almost  at  once  this  league  was 
controlled  by  men  favorable  to  the  railroad  company. 


1  They  exerted  a  terrorism  over  merchants  and  over  communities, 
thus  interfering  with  the  lawful  pursuits  of  the  people.  They  par- 
ticipated in  election  contests.  By  secret  cuts  and  rapid  fluctuations 
they  menaced  business,  paralyzed  capital  and  retarded  investment 
and  development. — Pacific  Railroad  Commission  Report,  p.  141. 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  161 

No  trick  escaped  the  vigilance  that  steered  the  machine 
and  had  no  partisan  preference  in  politics,  no  denomina- 
tion in  religion,  but  worked  and  plotted  and  mined  without 
ceasing  to  augment  and  maintain  colossal  power. 

All  these  and  still  other  influences  were  like  strings  at- 
tached to  many  puppets,  and  all  the  strings  led  into  the  of- 
fice of  the  railroad  company.  With  one  pull  upon  the 
strings  the  many  puppets  were  set  dancing. 

A  great  part  of  their  dancing  was  designed  to  conceal  the 
real  movements  of  the  company,  to  make  deviltry  appear 
plausible,  or  to  prevent  the  people  at  large  from  seeing  that 
popular  government  had  been  abolished. 

After  a  time  a  condition  resulted  in  which  the  railroad 
company  could  not  undertake  an  act  so  injurious  that  great 
numbers  of  respectable  men  would  not  applaud  and  support 
it;  and  the  public  became  calloused  to  charges  of  wholesale, 
corruption  that  were  opposed  or  refuted  from  so  many  emi- 
nent sources. 

After  a  time,  too,  there  grew  up  a  condition  in  which 
neither  any  laws  nor  constitutions,  nor  any  kind  of  public 
revolt  nor  public  protest,  nor  the  nation,  nor  contracts,  nor 
pledges,  nor  guaranteed  rights,  nor  any  consideration  of 
morals,  nor  any  other  creature,  seemed  to  avail  against  this 
Power  that  year  after  year  defied  every  attempt  to  restrain 
it,  until  men  lost  heart  and  settled  into  sullen  submission 
under  a  tyranny  they  could  not  throw  off. 

Periodically  there  had  been  angry  revolt  when  the  peo- 
ple had  attempted  to  regain  their  government;  anti-railroad 
conventions  had  been  held,  good  and  honest  men  nominated 
and  elected  to  office.  Every  such  rebellion  had  ended  in  the 
same  abject  failure. 

The  good  men  elected  to  office  found  themselves  utterly 
unable  to  combat  a  system  so  vast  and  so  marvelously  but- 
tressed. With  the  best  of  intentions  and  the  most  resolute 
will  they  were  always  defeated  and  helpless. 


162  STORIES    OF    THE    GREAT    RAILROADS 

The  state  courts  had  stood  by  the  company;  or  if  these 
courts,  too,  happened  to  be  captured  temporarily  by  the 
people,  then  the  company  (which  was  interstate)  resorted 
to  the  federal  courts  and  thence  invariably  returned  tri- 
umphant, so  that  no  essential  condition  was  changed.  In 
a  few  months  the  people  relapsed  into  their  lethargy,  and 
the  company  regained  the  full  measure  of  its  political  as- 
cendency. 

It  could  do  as  it  pleased,  this  company;  the  state  had 
created  it,  and  now  it  had  displaced  its  creator.  It  could 
do  as  it  pleased  and  levy  upon  the  people  practically  unlim- 
ited tribute.  It  had  the  power  to  make  transportation  rates 
and  through  these  rates  it  caused  the  people  to  pay  for  every 
cent  expended  by  its  political  machine.  Every  subsidy, 
every  "legal  expense,"  every  dollar  paid  for  "explaining 
things,"  every  charitable  subscription,  every  hired  legislative 
agent,  every  county  boss,  every  phase  of  the 'vast  organiza- 
tion, was  charged  against  the  people  and  taken  from  them 
in  transportation  rates,  not  once,  but  many  times.  The  peo- 
ple paid  for  their  own  undoing. 

They  paid  for  it  then,  they  pay  for  it  now,  they  will  con- 
tinue to  pay  for  it  more  and  more,  in  cash  taken  out  of  their 
earnings  and  likewise  in  the  increased  cost  of  living. 

This  great  political  machine  was  much  more  efficient  than 
Tammany's  or  any  other  machine  that  ever  existed,  be- 
cause it  was  nonpartisan;  it  dominated  the  Democratic  or- 
ganization as  easily  as  the  Republican.  Political  manipula- 
tion it  reduced  coldly  to  the  exact  principles  of  science  and 
business.  It  made  politics  a  matter  of  scientific  corruption 
and  perfect  organization,  and  by  these  means  it  secured 
astonishing  results. 

V  In  every  county  in  California  the  railroad  company  main- 
tained an  expert  political  manager  whose  employment  was 
to  see  that  the  right  men  (for  railroad  company)  were 
chosen  as  convention  delegates,  the  right  kind  of  candidates 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  163 

named  and  elected,  and  the  right  things  done  by  men  in 
office. 

Often  this  manager  would  be  the  Republican  boss  of  a 
Republican  county,  or  the  Democratic  boss  of  a  Democratic 
county.  In  important  or  doubtful  counties  he  would  be 
merely  the  railroad  boss  with  whom  the  Republican  boss  and 
the  Democratic  boss  must  deal  for  money,  votes,  and  suc- 
cess. Under  him  he  had  as  many  subordinates  as  he  needed 
to  care  perfectly  for  the  wards  and  rural  districts,  and 
through  these  assistants,  he  watched,  reported,  and  fore- 
stalled any  attempt  to  defeat  or  evade  the  system.  V 

At  the  head  of  this  vast  department  was  always  a  man 
of   peculiar   gifts   known    formally   as   the   railroad   com- 
pany's General  Solicitor,  but  by  the  cynical  part  of  the  / 
public  called  by  a  name  far  more  expressive  if  less  euphon-/ 
ious.     He  had  a  staff  of  well-drilled  and  able  assistants;) 
to  each  of  these  sub-departments  was  assigned.  One  looked 
after  the  Nevada  legislature,  one  cared  for  Utah,  one  for 
Arizona,  one  for   New   Mexico,  one   for  local  politics  in 
San  Francisco.    Each  had  his  own  corps  of  assistants  and 
ample  funds  to  buy  such  public  officers  as  he  might  need, 
v  With  such  an  origination,  so  supplied  with  money,  and 
so  defended  by  respectability,  the  railroad  company  could 
select  its.  ov,rn  United  States  Senators,  Members  of  Con- 
gress, County  Supervisors,  and  everything  between,  v 

The  money  cost,  of  course,  was  great;  but  as  the  cost 
was  saddled  directly  upon  the  people,  this  was  not  a  mat- 
ter of  importance  to  the  company.  It  was  equipped  with 
funds  to  buy  whatever  was  needed,  and  it  had  very  active 
support  in  ways  and  from  men  that  cost  little  or  nothing. 
This  at  first  seems  strange,  but  on  reflection  will  be  found""1 
to  be  true  and  to  represent  a  universal  condition  in  this 
country.  The  railroad  company  took  and  still  takes  advantage 
of  the  following  elements  that  exist  in  every  community : 

1.    Men  that  can  be  fooled  by  party  loyalty. 


164  STORIES    OF    THE    GREAT    RAILROADS 

2.  Men  that  are  eager  for  political  careers  and  know 
there  is  no  chance  except  by  serving  the  money  power. 

3.  Merchants  that  can  be  controlled  through  their  banks, 
or  terrorized,2  or  brought  into  line  with  rebates. 

4.  Men  that  believe  the  railroad  company  and  all  great 
corporations  to  be  part  of  "our  set"  and  feel  a  class-con- 
scious satisfaction  in  allying  themselves  against  the  riffraff 
and  the  ignorant  rabble  "envious  of  us  of  the  better  orders." 

5.  Men  that  are  fooled  by  the  purchased  press. 

6.  Men  that  can  be  had  for  a  pass  or  two. 

Beyond  these  remains  the  class  that  must  be  secured  with 
money,  including  bosses,  heelers,  professional  politicians,  re- 
peaters, colonizers,  floaters,  lodging-house  keepers,  the 
keepers  of  such  dives  and  disorderly  houses  as  cannot  be 
controlled  through  the  police,  the  saloon  keepers  that  can- 
not be  controlled  through  the  breweries. 

All  of  these  were  fully  utilized  by  the  political  depart- 
ment and  secured  for  the  railroad  company  through  the  con- 
trol of  the  state  legislature. 

^  Expenses,  of  course,  did  not  end  when  the  state  officers 
were  chosen.  Many  senators  and  representatives  worked  on 
the  basis  of  a  regular  salary  of  $5,000  merely  to  kill  all 
bills  that  the  company  wished  to  have  killed,  but  with  the 
proviso  that  for  passing  bills  the  company  wished  to  have 
passed  there  must  be  extra  compensation. 

All  United  States  senatorships  were  also  outside  of 
the  regular  price,  and  charged  as  extras.  To  elect  a 
senator  for  the  full  term,  the  regular  price  was  $3,000  a 
vote ;  for  terms  of  four  years  or  two  years,  discounts  were 
made  from  this  tariff,  v/ 

Besides,  there  were  local  bosses  to  be  paid  and  their 
rates  were  sometimes  unreasonable.  Thus  Abe  Ruef,  the 
convicted  boss  of  San  Francisco,  told  Detective  Burns 


Pacific  Railroad  Commission  Report,  p.  141. 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  165 

that  William  F.  Herrin,  the  present  political  manager  j 
for  the  Southern  Pacific,  paid  him  $14,000  for  the  control/ 
of  the  San  Francisco  county  delegation  to  the  Republican/ 
State  Convention  of  1906,  which  was  rather  a  high  price/ 
and  on  special  occasions  the  price  of  senatorships  and  other 
offices  have  been  suddenly  advanced  in  a  way  that  woulp 
be  very  annoying  to  the  railroad  company  if  it  were  ncjt 
able  to  charge  the  price  to  the  public. 

About  all  this  let  no  one  think  there  is  surmise  or  inference ; 
least  of  all  is  there  any  exaggeration.  We  are  dealing  with 
an  inside  view  of  the  situation  furnished  chiefly  by  one 
that  was  long  of  the  railroad's  political  department,  a 
high  executive  that  for  years  beheld  and  was  a  part  of 
every  movement  in  the  game.  This  man,  James  W.  Rea, 
of  San  Jose,  personally  honest  in  spite  of  his  employ- 
ment, has  made  an  explicit  and  detailed  statement  con- 
cerning all  of  these  conditions.3  The  railroad  company  has 
had  ample  opportunity  to  deny  what  Mr.  Rea  has  averred 
on  his  own  knowledge  and  from  his  own  long  experience, 
and  the  railroad  company  has  not  challenged  one  word  of 
his  story.  So,  even  if  it  were  not  supported  in  a  thousand 
ways  by  ten  thousand  facts  and  witnesses,  fair-minded  men 
would  say  that  here  must  be  the  plain,  unpleasant  truth. 

Yet  all  this  time  we  are  to  bear  in  mind  that  this  mon- 
strous and  corrupt  machine  was  not  deliberately  designed  by 
the  four  men  of  Sacramento  nor  at  first  desired  by  them, 
notwithstanding  the  unequaled  power  that  it  conferred.  In 
truth  it  was  at  first  forced  upon  them  by  conditions  and  then 
grew  because  of  other  conditions  and  not  because  of  any 
man's  depravity.  Many  causes  combined,  as  in  human 
affairs  many  causes  always  do  combine,  to  press  them  ir- 
resistibly along  the  one  course. 


San  Francisco  Call,  July  4,  1908. 


166  SiCl;iLS    OF    THE    GREAT    RAILROADS 

There  were  first,  Stanford's  natural  aptitude  for  politics 
and  political-  maneuvering,  and  his  election  as  the  first 
Republican  governor  of  California;  but  there  were  also 
many  other  and  greater  influences. 

From  the  beginning  the  whole  enterprise  was  involved  in 
politics  because  of  the  grants  and  subsidies  that  were  sought 
from  cities,  counties,  and  the  state. 

"Then  it  needed  much  legislation  for  various  purposes, 
and  it  began  to  face  many  harassing  lawsuits  growing  out 
iof  its  peculiar  and  illegal  tricks  of  management.  The  easy 
way  to  get  the  laws  it  needed,  to  kill  laws  that  interfered 
with  it,  and  to  win  the  control  of  the  courts,  was  through 
political  action.  As  to  the  kind  of  action,  there  was  always 
'the  example  of  Mr.  Huntington's  brilliant  success  with 
Congress.  Men  would  hardly  be  flesh  and  blood  if  they 
were  not  impressed  with  that. 

Of  the  original  supporters  of  Engineer  Judah's  railroad 
project  were  four  stockholders  that  had  not  been  frightened 
out  of  the  enterprise  by  Mr.  Huntington's  threat  of  "buy, 
sell  or  the  work  stops."  These  were  Samuel  Brannan,  the 
two  Lambards,  of  Sacramento,  and  John  R.  Robinson. 
After  the  completion  of  the  road  all  men  saw  that  its  busi- 
ness was  enormous  and  its  profits  must  be  great,  but  for 
some  years  there  were  either  no  dividends  or  the  dividends 
were  disproportionate  to  the  earnings.  Brannan,  the  Lam- 
bards,  and  Robinson  therefore  brought  suits  agains  Stan- 
ford, Huntington,  Hopkins  and  Crocker,  for  an  accounting 
of  profits  alleged  to  have  been  diverted. 

These  suits  had  a  very  peculiar  history.  In  all  of  them 
the  allegations  shown  by  the  bills  of  complaint  were  of 
the  most  outrageous  fraud.  Thus  the  bill  in  the  Robinson 
case,  a  digest  of  which  I  have  before  me,  alleges  that  neither 
Stanford,  Huntington,  Hopkins,  nor  Crocker  ever  paid  a 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  167 

cent  for  their  stock, 4  that  the  only  stock  ever  paid  for  was 
that  held  by  Robinson,  the  Lambards,  Brannan,  and  the 
counties  of  San  Francisco,  Placer  and  Sacramento;  that 
these  counties  had  bought  stock  as  subsidies  and  that  Stan- 
ford, Huntington,  Hopkins  and  Crocker  subsequently  re- 
purchased this  stock  out  of  the  earnings  of  the  road;  that 
after  these  four  men  had  seized  control  of  the  road  they 
never  held  a  stockholders'  meeting,  never  paid  for  their 
stock,  and  appropriated  for  their  own  use  $15,000,000  worth 
of  real  estate  granted  to  the  road  for  terminals  by  the  city 
of  San  Francisco,  the  city  of  Sacramento,  and  the  state  of 
Nevada. 

The  bill  recites  the  huge  gifts  received  from  the  United 
States,  from  the  state  of  California  and  the  various  counties, 
and  then  declares  the  actual  cost  of  building5  the  road  to 
have  been  as  follows: 

*This  allegation  should  be  compared  with  the  finding  of  the 
minority  report  of  the  Pacific  Railroad  Commission,  which  at  page 
9,  charges  Leland  Stanford  with  swearing,  on  September  18,  1871, 
that  $54,283,190  of  Central  Pacific  stock  had  been  paid  in,  whereas 
the  paid-in  stock  was  only  $760,000.  This  is  designated  in  the 
report  as  one  of  the  false  statements  under  oath  contained  in  affi- 
davits now  on  file  in  the  Interior  Department  at  Washington. 

0  It  is  interesting  to  compare  these  statements  with  certain  testi- 
mony given  before  the  Pacific  Railroad  Commission.  For  instance, 
take  the  charge  made  for  building  from  the  eastern  base  of  the 
Sierras  across  the  plains.  This  was,  as  above  stated,  at  the  foothill 
rate,  $32,000,  although  the  act  provided  that  on  ordinary  or  nearly 
level  ground  the  rate  should  be  only  $16,000  a  mile.  At  page  3662 
of  the  testimony,  Mr.  Charles  Crocker  being  on  the  stand,  I  find 
this: 

QUESTION  :  Is  it  not  a  fact  that  four-fifths  of  the  distance  be- 
tween Reno  and  Promontory  Point  [525  miles]  consists  of  easy, 
rolling  land,  where  there  was  no  special  difficulty  of  construction? 

ANSWER  :     Yes. 

This  means  that  for  these  420  miles  Messrs.  Stanford,  Hunt- 
ington, Hopkins  and  Crocker  charged  the  Government  $13,440,000; 
whereas  they  should  have  charged  but  $6,720,000.  The  charge  to 
the  Government  more  than  sufficed  to  build  these  420  miles  and 
left  $3,000,000  in  the  hands  of  the  Big  Four,  besides  the  land  grant, 
their  own  bonds  at  $32,000  a  mile  and  all  the  stock  that  they 
issued. 

The  equal  of  this  operation  has  not  been  known  in  the  history 
of  railroad  building. 


168  STORIES    OF    THE    GREAT    RAILROADS 

For  the  first  18  miles $11,500  a  mile 

For  the  next  150  miles  less  than 42,000  a  mile 

For  the   remainder  of   the  road  to  the   six 

hundred  and  ninetieth  mile  less  than....  21,000  a  mile 

On  this  the  four  men  of  Sacramento  drew  from  the  fed- 
eral government  $16,000  a  mile  for  the  first  seven  miles, 
$48,000  a  mile  for  the  next  150  miles,  and  $32,000  a  mile 
for  the  rest  of  the  distance. 

If  the  road  had  been  built  at  actual  cost,  the  entire  charge 
for  construction  and  equipment  would  have  been  $19,212,960 
as  against  the  $55,000,000  and  more  charged  by  the  Contract 
and  Finance  Company — which  was  another  name  for  Stan- 
ford, Huntington,  Hopkins,  and  Crocker. 
""The  bill  also  alleged  that  of  the  first  mortgage  bond  is- 
sue of  $27,500,000  these  men  had  seized  $22,000,000  for 
themselves,  and  that  great  sums  of  money  that  rightfully 
should  have  been  available  for  dividends  had  been  diverted 
and  withheld. 

In  spite  of  the  grave  nature  of  these  charges  against  their 
personal  honor,  the  men  implicated  did  not  allow  the  cases 
to  come  to  trial  where  they  could  prove  their  innocence.6  On 
the  contrary,  they  compromised  each  suit  by  buying  the 
stock  held  by  the  complainant.  For  some  of  this  stock  the 
price  paid  was  $400  a  share,  for  some  $500,  and  for  some 
$1,700. 

As  the  highest  estimate  of  the  real  market  value  of  the 
stock  was  at  this  time  about  60,  it  will  be  seen  that  the 
men  had  luxurious  taste  in  such  things. 

It  appears  also  from  certain  testimony  and  may  be  noted 
as  of  interest  that  the  attorneys  that  brought  the  suits,  Al- 
fred A.  Cohen,  Delos  Lake,  and  John  B.  Felton,  subsequent- 
ly passed  into  the  employ  of  the  railroad  company  and  re- 
mained there  until  they  died.7 


8  Pacific  Railroad  Commission  Report,  p.  2779. 
'Ibid.,  pp.  2775,  2776,  2779,  2831,  3653. 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  169 

These  and  many  other  significant  incidents,  the  growing 
unrest  in  the  state,  the  bitter  complaints  of  shippers  and 
merchants,  the  feeling  plainly  expressed  that  the  railroad 
monopoly  was  a  menace  to  the  public,  indicated  the  necessity 
of  controlling  public  functions  and  building  a  political  in- 
stitution. In  plain  terms,  if  the  power  of  the  government 
were  not  seized  the  people  were  practically  certain  to  in- 
flict vast  injuries  upon,  or  perhaps  destroy,  the  profits  that 
these  four  saw  looming  ahead  of  them.  From  one  point  of 
view  political  control  was  a  matter  of  self-preservation; 
later,  of  course,  it  became  a  matter  of  enormous  advantage, 
but  at  first  it  was  only  a  necessity. 

If  there  had  been  Nothing  else,  the  relations  of  these  four 
men  to  the  federal  government  would  have  driven  them  in- 
evitably into  politics.  The  $27,500,000  of  government  bonds 
issued  in  their  behalf  were  a  lien  on  their  property  and  they 
were  obligated  to  pay  the  annual  interest.  Their  purpose 
was  to  default  on  these  interest  payments  for  the  present 
and  eventually  to  evade  the  payment  of  principal  and  inter- 
est. Their  only  chance  to  succeed  in  any  such  scheme  was 
to  become  a  great  political  power,  and  first  of  all  to  own 
the  state  of  California  and  wield  it  as  a  solid  block  in  Con- 
gress and  in  the  national  conventions. 

There  was  also  to  be  considered  the  chance  of  enormous 
profits  that  lay  in  getting  from  Congress  more  rich  grants 
from  the  public  domain  for  their  various  plans  of  railroad 
extension,  because  in  one  such  grant  would  lie  a  return 
greater  than  the  entire  cost  of  political  control,  including 
the  expenses  of  "explaining"  many  things  to  many  public 
men ;  and  there  must  have  been  something  very  alluring  in 
the  idea  of  defraying  by  public  grants  the  cost  of  heading 
off  competition  and  maintaining  the  traffic  monopoly  of  the 
West. 

The  wonderful  career  of  Mr.  Huntington  in  Washing- 
ton showed  the  way  by  which  these  things  could  be  done. 


170  STORIES    OF    THE    GREAT    RAILROADS 

He  had  laid  the  cornerstone  of  the  enterprise  in  political 
manipulation  and  the  illicit  control  of  public  officers.  But 
for  his  achievements  with  Congress  there  would  have  been 
no  colossal  fortunes  for  him  and  his  associates,  and  without 
the  like  achievements  in  Sacramento  and  Washington  no 
more  millions  could  be  added  to  these  fortunes  even  if  still 
greater  disasters  did  not  occur. 

Governor  Stanford  at  all  times,  Mr.  Crocker  much  of  the 
time,  and  Mr.  Hopkins  some  of  the  time,  looked  out  for 
Sacramento.  I  shall  recite  now  some  of  the  strange  ex- 
penditures they  made.  In  some  cases  these  were  charged 
up  to  "expense,"  in  some  to  "legal  expenses;"  in  all  cases 
they  were  without  explanation.8  You  are  to  understand 
that  I  am  quoting  from  an  incomplete  list,  covering  only  a 
few  of  the  years : 

1875. 

Dec.   31.    Leland   Stanford    $171,781.89 

Dec.   31.    Leland    Stanford    8,877.15 

No  date.    Leland  Stanford   15,137.00 

Dec.   31.     Leland   Stanford   15,177.33 

1876. 

Feb.     6.    Western   Development   Company    26,000.00 

Feb.     8.    Leland    Stanford    20,000.00 

Feb.    17.    Leland    Stanford    20,000.00 

July  30  to  Sept.  30,  1877.    Leland  Stanford 83,418.09 

Aug.   30.    D.  D.  Colton  1,000.00 

Sept..  22.     Western   Development  Company    50,000.00 

Sept.  22.     Western   Development   Company   29,974. 13 

Nov.     2.    D.   D.  Colton   7,500.00 

1877. 

Sept.    7.    Leland   Stanford    50,000.00 

Oct.   26.    Mark  Hopkins  5,000.00 

Nov.     1.    Leland  Stanford   83,418.00 

Dec.   27.    Leland  Stanford  52,500.00 

1878. 

Feb.    14.    Leland  Stanford  10,000.00 

June     7.    Leland  Stanford 13,000.00 

June   28.    Leland  Stanford 111,431.25 

Sept.    3.    Leland  Stanford  12,000.00 

Sept.    4.    S.  T.  Gage  3,000.00 

8  See  Pacific  Railroad  Commission  Report,  p.  2999.  Mr.  Cohen, 

attorney   for  the   railroad,   here   makes   an   admission  about   these 

expenditures  that  can  be  construed  to  mean  only  the  worst  about 
them. 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  171 

Sept.  27.    Leland  Stanford  38,156.03 

Oct      4.     D.   D.   Colton    3,290.00 

Nov.    12.    Leland  Stanford 48,816.94 

Nov.    12.    Leland  Stanford 18,168.71 

1879. 

Mar.  25.    C.  Crocker   26,452.60 

Mar.  28.    C  Crocker    3,100.00 

May     1.    C  Crocker   40,000.00 

May     6.    C.  Crocker   40,000.00 

June   29.    Western  Development  Company   40,745.25 

July    23.    Leland  Stanford  500.00 

Aug.     2.    Leland  Stanford 789.50 

Sept.  27.    Leland  Stanford  38,156.03 

When  the  Pacific  Railroad  Commission  sought  to  learn  i 
something  about  these  expenditures  Mr.  Stanford,  under! 
oath,  could  not  remember  about  them  or  else  took  refuge  in  1 
a  refusal  to  answer,  whereupon  Justice  Field  and  Justice/ 
Lorenzo  Sawyer  sustained  his  refusal. 

Then  the  Commission  tried  to  obtain  from  Charles  F. 
Crocker,  Vice-President  of  the  railroad  and  son  of  the 
original  contractor,  some  explanation  of  these  and  cog- 
nate mysteries.  I  will  give  a  specimen  of  Mr.  Crocker's  ex- 
planation. He  was  asked: 

"What  was  the  nature  of  these  payments  ?" 

To  which  he  answered  lucidly:  "They  were  general  in 
their  character." 

On  being  pressed  for  a  more  specific  definition  he  said 
that  they  were  "expenses  for  various  purposes."  Being 
again  pressed  to  be  explicit,  he  said: 

"Anything  and  everything  that  they  [the  officers  of  the 
company]  might  consider  advantageous  to  the  company  and 
which  required  the  expenditure  of  money." 

Question — Do  you  know,  directly  or  indirectly,  of  the 
expenditure  of  any  money  on  account  of  the  Central  Pa- 
cific Railroad  Company  for  the  purpose  of  influencing  leg- 
islation ? 

Mr.  Cohen  (attorney  for  company  and  the  same  Cohen 
that  brought  the  Robinson  suit) — I  advise  you  not  to  an- 
swer that  question. 


172  STORIES    OF    THE    GREAT    RAILROADS 

Witness — By  advice  of  counsel  I  decline  to  answer  that 
question.9 

.  As  to  the  inevitable  results  of  such  a  system,  dealing  on 
a  vast  scale  in  rottenness,  I  will  give  a  few  incidents  much 
more  significant  than  any  description  could  possibly  be. 
From  them  the  discerning  will  see  clearly  enough  what  a 
bedraggled  political  prostitute  California  had  become. 

Mr.  Rea  says  that  when  Mr.  Felton  was  nominated  for 
the  United  States  Senate  he  was  to  fill  an  unexpired  or 
short  term.  Sixty  members  of  the  legislature  organized  a 
Strikers'  Union  or  Black  Horse  Brigade  and  demanded 
$180,000  in  a  lump  sum  for  their  votes.  This,  for  a  short 
term,  was  a  strong  advance  over  market  rates. 

Mr.  Rea  protested  vigorously.     The  striking  legislators 
•conferred,  and  then  informed  Mr.  Rea  that  they  had  de- 
termined to  insist  upon  their  terms  and  unless  they  got 
$180,000  they  would  proceed  at  once  to  elect  one  Johnson, 
an  unknown  farmer  of  the  San  Joaquin  Valley. 

This  same  James  W.  Rea,  to  whom  we  are  indebted  for 
this  close  inside  view  of  the  machine  at  work,  was  at  one 
time  a  state  railroad  commissioner.  In  that  capacity  he 
made  a  ruling  that,  for  reasons  not  necessary  to  detail  here, 
the  Southern  Pacific  did  not  like.  Officers  of  the  railroad 
and  other  interests  demanded  that  this  ruling  be  reversed. 
Rea  refused  to  reverse  it.  He  was  then  threatened  with  the 
venal  press.  He  defied  the  venal  press.  At  last  he  was 
summoned  before  C.  P.  Huntington,  who  happened  to  be 
then  in  San  Francisco.  Huntington  ordered  him  to  reverse 
his  ruling.  Once  more  Rea  declined. 

"Then,"  said  Mr.  Huntington,  "I  shall  have  to  give  the 
word  to  impeach  you  in  the  legislature  and  I  hate  very  much 
to  do  it." 

So  within  a  few  days  the  legislature  began  impeachment 

'Pacific  Railroad  Commission  Report,  testimony  of  C.  F. 
Crocker,  p.  2998. 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  173 

proceedings  against  Rea.  There  was  pending  at  the  time 
a  reassessment  bill  that  would  be  an  advantage  to  the  rail- 
road and  for  which  many  legislators  had  been  bribed  to 
vote.  When  Rea  was  testifying  before  the  House  in  the 
impeachment  trial  he  ripped  into  this  reassessment  bill, 
exposed  its  true  nature,  and  denounced  the  corruption  that 
had  been  used  in  its  behalf.  The  next  day  the  official  rec- 
ords were  mutilated  so  as  to  take  from  the  stenographer's 
report  every  reference  he  had  made  to  the  reassessment 
bill.  The  public,  therefore,  never  knew  that  he  had  made 
a  revelation  on  this  subject,  and  the  House  proceeded  to 
pass  the  impeachment  bill. 

Mr.  Rea  had,  however,  impressed  certain  facts  upon  cer- 
tain senators,  and  one  of  the  facts  was  that  he  knew  per- 
fectly well  what  were  the  conditions  in  that  body,  which 
senators  were  getting  $5,000  a  year  each  as  "negatives" — 
that  is  to  say,  for  merely  killing  bills  that  the  railroad  de- 
sired to  have  killed — and  which  of  them  had  received  more 
for  extra  services.  Some  of  these  got  the  idea  that  he  in- 
tended to  make  a  sweeping  and  sensational  expose  of  the 
whole  business  of  bribery.  They  came  to  him  and  opened 
negotiations  that  ended  in  the  dropping  of  the  impeachment 
proceedings  and  the  concealing  of  disagreeable  facts  about 
eminent  statesmen.10 

People  became  so  accustomed  to  such  stories  that  condi- 
tions were  regarded  as  a  matter  of  course,  and  were  talked 
of  with  a  certain  naive  candor  inexpressibly  startling  to 
visitors  of  a  more  Puritanical  habit. 

When  in  1885,  Leland  Stanford  was  elected  to  the  United 
States  Senate  (an  event  that  was  to  have  unexpected  re- 
sults) the  state  laughed  and  discussed  the  price  as  it  would 
discuss  the  orange  market.  A  few  days  after  the  legisla- 
ture's action  the  late  Senator  James  G.  Fair  was  standing 


10  See   Mr.   Rea's    full   statement  and   examination   in   the   San 
Francisco  Call,  July  4,  1908. 


174  STORIES    OF    THE    GREAT    RAILROADS 

in  front  of  the  Palace  Hotel  in  San  Francisco,  meditatively 
gazing  into  the  street  and  chewing  a  toothpick. 

A  reporter  approached  and,  being  old  friends,  the  two 
began  to  chat.  ''Senator,"  said  the  reporter,  "how  much  do 
you  think  Stanford's  election  cost  him?" 

"Well,"  said  Senator  Fair,  pausing  evidently  to  make 
some  mental  calculations,  "I  can  judge  of  that  only  by  my 
own  experience.  From  what  it  cost  me  in  Nevada  I  should 
say  it  must  have  cost  Stanford  not  less  than  a  million." 

Under  the  blight  of  years  of  railroad  domination  the 
public  conscience  was  slowly  seared  and  corruptionists  grew 
bold  while  the  public-service  corporations  worked  together. 

At  the  session  of  1897  the  San  Francisco  Examiner  un- 
earthed a  condition  of  legislative  corruption  that  would 
have  appalled  another  state.  To  complete  the  evidence 
some  telegrams  were  needed  that  had  been  sent  via  the 
Western  Union.  An  investigating  committee  subpoenaed 
these  telegrams.  The  Western  Union  undertook  to  rush 
them  out  of  the  state  over  the  Central  Pacific.  Just  before 
they  could  cross  the  Nevada  line  the  Examiner  succeeded 
in  reaching  a  village  constable  with  antique  courage.  He 
held  up  the  train,  found  the  box  containing  the  telegrams, 
and  sent  it  back  to  Sacramento  under  guard. 

When  it  was  opened  it  was  found  to  contain  evidence 
that  the  railroad  company  had  not  changed  its  methods 
since  the  days  when  Mr.  Huntington  "explained  things." 

To  be  seen  at  its  best,  any  such  incident  should  be  studied 
in  connection  with  the  table  of  unexplained  expenditures11 
offered  on  another  page  and  then  in  connection  with  the 
Southern  Pacific's  rate  tariff.  Into  these  it  will  be  found  to 
fit  quiet  charmingly.  Of  course  every  excursion  into  the 
legislative  vote  market  was  charged  up  with  the  rest  to 
"legal  expenses"  and  (also  with  the  rest)  went  into  the 

u  Pacific  Railroad  Commission  Report 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  175 

capitalization  upon  which  we  are  privileged  to  pay  our  sub-j 
stance  in  the  increased  cost  of  living. 

We  shall  now,  if  you  please,  return  to  Mr.  Huntington 
in  Washington  and  see  how  he  fared  in  the  underworld.  It 
is  really  an  extraordinary  story,  for  he  went  there  a  country 
merchant  without  experience  in  public  affairs,  without  ac- 
quaintance or  influence,  and  he  managed  to  win  from 
Congress  first  one  huge  grab  at  the  public  resources  and 
then  another,  until  he  appeared  the  very  Colossus  of  lobby- 
ists. In  the  history  of  Congress  no  man  has  come  before 
it  with  balder  propositions  of  private  gain  nor  maintained 
them  with  anything  like  his  success. 

Yet  about  this  we  should  be  under  no  misapprehension. 
Mr.  Huntington  was  no  wonder-worker,  no  spellbinder,  no 
wielder  of  the  magic  of  eloquence.  He  was  a  practical  man. 
We  are  not  to  believe  that  he  entered  Washington  an  un- 
lettered trader  and  by  force  of  argument  swayed  great 
statesmen  to  his  will.  He  led  against  Congress  a  band  of 
legislative  experts,  well  supplied  with  money;  they  did  the 
rest. 

From  1862  to  1896,  he  spent  most  of  his  time  in  Wash- 
ington and  attended  and  narrowly  scrutinized  every  session 
of  Congress.  In  those  thirty- four  years  he  passed  through 
Congress  a  great  many  bills  that  he  wanted  to  have  passed 
he  killed  innumerable  bills  that  he  wanted  to  have  killed ;  he 
utterly  wrecked  and  ruined  the  almost  life-long  plans  of  his 
one  great  competitor ;  he  exercised  in  all  administrations  and 
upon  most  departments  a  sinister  and  imperial  power;  and 
on  only  two  occasions  was  he  really  defeated. 

The  history  of  parliamentary  government  shows  no  fel- 
low to  this  career. 

I  am  going  to  let  Mr.  Huntington  tell  what  he  will 
about  it. 

He  had  in  his  employ  in  1862,  and  for  many  years  there- 
after, one  General  Franchot,  quite  well  known  in  Wash- 


176  STORIES    OF    THE    GREAT    RAILROADS 

ington;  also  one  Beard,  one  Bliss,  one  Sherrill,  and  others. 
Before  the  Pacific  Railroad  Commission  in  1887,  he  was 
asked  about  the  nature  of  General  Franchot's  ministra- 
tions. 

"He  was,"  said  Mr.  Huntington,  largely,  "a  very  honor- 
able man  whom  I  had  known  since  I  was  a  boy,  and  he  had 
my  entire  confidence." 

The  Commission  had  discovered  (from  other  sources) 
that  Franchot  drew  from  Mr.  Huntington  $30,000  or 
$40,000  every  year  without  vouchers,  and  Mr.  Huntington 
was  asked  to  throw  light  on  this  strange  fact.  -  He  said : 

"We  had  to  get  men  to  explain  a  thousand  things.  A 
man  who  has  not  had  the  experience  could  hardly  imagine 
the  number  of  people  that  you  have  to  explain  these  mat- 
ters to,"12 

Still  the  Commission  was  not  quite  content  with  this 
luminous  answer  and  wanted  to  know  more.  It  appeared 
that  in  1873,  for  instance,  General  Franchot's  work  in 
Washington  had  cost  $61,000,  without  any  vouchers.  Mr. 
Huntington  sounded  still  the  pipe  of  praise. 

"He  was,"  said  he,  "of  the  strictest  integrity  and  as  pure 
a  man  as  ever  lived;  and  when  he  said  to  us  'I  want  $10,- 
000,'  I  knew  it  was  proper  to  let  him  have  it."  13 

Examination  by  Commissioner  Anderson: 

QUESTION. — How  could  Mr.  Franchot  personally  earn  $30,000 
or  $40,000  a  year  in  explaining  things  to  members  of  Congress? 

ANSWER. — He  had  to  get  help.  He  had  lots  of  attorneys  to  help 
him. 

Q.— Whom  did  he  have? 

A. — I  never  asked  him. 

Q. — How  do  you  know  he  had? 

A. — Because  he  told  me  so.     He  said,  "For  these  explanations 


"Pacific  Railroad  Commission  Report,  Testimony  of  Hunting- 
ton,  p.  25. 

11  Pacific  Railroad  Commission  Report,  Testimony  of  Hunt- 
ington, p.  34. 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  177 

I  have  to  pay  out  a  little  here  and  a  little  there  and  that  aggregates 
a.  great  deal."  " 

Q. — In  addition  to  explaining  with  words  do  you  not  suppose 
they  explained  with  champagne  and  expensive  dinners? 

A. — Very  likely.    I  never  gave  a  dinner  in  Washington. 

Q. — Was  not  a  great  deal  of  it  spent  in  cigars  and  champagne 
dinners? 

A. — I  think  so.  Not  so  much,  but  perhaps  some  of  it  was  to 
get  some  able  man  to  sit  down  and  explain  in  the  broadest  sense 
what  we  wanted  to  have  done.15 

It  appears  that  up  to  1887,  the  total  expenditures  of  the 
Southern  Pacific  at  Washington  (without  adequate  vouch- 
ers) were  $5,497,539.16  The  important  point  about  these 
expenditures  is  that  they  were,  for  the  most  part,  of  money 
that  really  belonged  to  the  people  of  the  United  States  be- 
cause it  was  money  that  should  have  been  paid  into  the 
National  Treasury  as  interest  on  the  road's  indebtedness. 
To  use  public  funds  to  induce  public  servants  to  give  away 
more  public  funds  seems  an  extraordinary  achievement  in 
the  history  of  legislation,  but  one  of  which  the  Southern 
Pacific  gentlemen  were  easily  capable. 

Subsequently  Mr.  Huntington,  examined  under  oath,  was 
asked  this  question : 

Q. — In  regard  to  the  range  of  discussion  .that  was  to  be  per- 
mitted between  the  members  of  Congress  and  the  apostles  that 
you  sent  to  them,  was  that  generally  confined  to  Mr.  Franchot  and 
Mr.  Sherrill,  or  did  you  take  a  hand  in  that? 

A. — Probably  it  was  done  more  or  less  by  General  Franchot,  Mr. 
Sherrill  and  myself. 

Q. — As  a  matter  of  fact,  did  they  from  time  to  time  consult  with 
you? 

A. — They  did. 

And  then  for  the  first  and  only  time  in  all  these  examina- 
tions Mr.  Huntington  was  shaken  out  of  his  wary  self- 
possession  and  ability  to  dodge  and  twist. 

"Ibid.,  p.  38. 
"Ibid.,  p.  38. 
19  Pacific  Railroad  Commission  Report,  p.  39. 


178  STORIES    OF    THE    GREAT    RAILROADS 

Q. — But  what  I  want  to  get  at  particularly  is  that  no  portion 
of  these  moneys  was  to  be  considered  as  covered  by  the  ordinary 
expenditures  of  a  railroad  for  purchases  of  property  and  materials. 
Those  would  be  specific  vouchers.  So  that  as  to  all  the  unex- 
plained vouchers  we  may  assume  that  they  were  for  moneys  ex- 
pended for  imparting  information  to  Congress,  or  to  the  depart- 
ments, or  for  some  purpose  of  that  character? 

A. — That  I  cannot  say.  Most  of  the  money  was  expended,  no 
doubt,  to  prevent  Congress  and  the  Departments  from  robbing  us  of 
our  property." 

I  put  down  all  these  things  to  complete  the  study  of  an 
intensely  interesting  human  document.  You  observe  no 
doubt,  how  agilely  Mr.  Huntington  glides  over  the  thinnest 
places  and  how  honest  he  looks,  how  plausible  he  makes  his 
cause  look. 

So,  then,  we  should  have  interest  in  noting  in  the  suc- 
ceeding table  of  Mr.  Huntington's  unexplained  vouchers, 
observing  first  that  "I.  E.  Gates"  was  a  confidential  clerk 
in  his  employ  and  that  here,  as  in  the  former  case,  the  list 
we  present  is  not  complete. 

Eleven  years  of  expenditures  for  "explaining"  things  in 
behalf  of  the  Central  Pacific  and  Southern  Pacific — being 
some  of  the  unexplained  vouchers  charged  to  "expenses" 
upon  which  the  officers  of  the  company  refused  to  throw 
any  light — make  this  showing: 

1870  .  ..$  63,581.03 

1871  13,498.72 

1872  73,361.83 

1873  7,348.46 

1874  52,844.94 

1875  197,311.54 

1876  299,301.37 

1877  279,573.06 

1878  471,081.06 

1879  244,298.08 

1880  197,809.36 


Total   $1,900,009.83 

11  Pacific  Railroad  Commission  Report,  p.  37  et  seq. 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  179 

In  the  foregoing  lists  the  most  interesting  exhibits  are 
those  of  1877-78  when  Huntington  was  defeating  Tom 
Scott,  and  for  the  years  in  which  the  legislature  was  in  ses- 
son  at  Sacramento.  In  running  over  the  lists  of  unex- 
plained expenditures  one  can  usually  define  the  legislative 
sessions  by  the  crowded  entries. 

In  1884  the  sums  drawn  by  Charles  F.  Crocker  without 
explanation  total  $404,710  and  in  the  early  part  of  1885, 
$55,000.  S.  T.  Gage,  one  of  the  railroad's  legislative  agents, 
drew  out  $18,150  in  1884  and  $119,341  in  the  first  part  of 
1885 — about  the  time  that  Leland  Stanford  was  drawing 
$40,066.95  for  a  similarly  unexplained  purpose. 

Here  is  the  way  some  of  these  items  look  in  the  records 
for  part  of  one  month : 

1885.  Mar.  20.     S.  T.  Gage 15,000.00 

Mar.  7.  S.  T.  Gage $  2,500.00  Mar.  21.     S.  T.  Gage 21,000.00 

Mar.  10.  Chas.  F.  Crocker  5,000.00  Mar.  23.  Chas.  F.  Crocker  15,500.00 

Mar.  12.  S.  T.  Gage 3,000.00  Mar.   23.  S.   T.   Gage  for 

Mar.  16.  Chas.  F.  Crocker  29,000.00            H.    H.    Cummings 1,250.00 

Mar.  17.  S.  T.  Gage 41,000.00  Mar.  23.     S.  T.   Gage 8,500.00 

Mar.  18.  S.  T.  Gage 3,000.00 


Mar.  19.     S.  T.  Gage 9,000.00  Total    $153,750.00 

All  without  explanation.  The  legislature  was  in  session. 
It  was  the  legislature  that  about  this  time  elected  Leland 
Stanford  to  the  United  States  Senate  to  succeed  J.  T.  Far- 
ley, Democrat. 

Mr.  Huntington  was  not  pleased  with  the  legislature's 
choice.  For  years  he  and  Stanford  had  been  growing  es- 
tranged. The  reason  is  generally  understood  in  California ; 
but  being  related  to  private  life  and  scandal  need  not  be 
gone  into  here.  Huntington  had  thought  A.  A.  Sargent 
should  go  back  to  the  Senate  and  he  took  unusual  ways  to 
make  known  his  resentment  when  Stanford  took  the  place 
for  himself.18 

In  1888  he  suddenly  gave  out  an  interview  containing  a 
statement  that  was  construed  to  mean  that  Stanford  had 

11  See  Mr.  Charles  Dwight  Willard's  interesting  book,  "The  Free 
Harbor  Contest,"  p.  59. 


180  STORIES    OF    THE    GREAT    RAILROADS 

paid  $500,000  of  the  railroad  company's  money  for  his  elec- 
tion to  the  Senate.  This  angered  Stanford  and  an  open 
breach  was  imminent.  It  was  patched  up  in  some  way,  the 
common  report  being  that  Stanford  had  threatened  Hunt- 
ington  with  counter  revelations  equally  damaging. 

Subsequently  Huntington  revenged  himself  by  securing 
Stanford's  removal  as  president  of  the  Central  Pacific, 
which  place  he  had  held  continuously  since  the  organization 
of  the  company  in  1861. 

Very  interesting  disclosures  might  have  been  made  on 
both  sides  concerning  other  uses  of  the  company's  money. 
Thus  it  appears  now  that  one  of  the  most  famous  editors 
of  San  Francisco  was  on  the  pay  roll  at  $10,000  a  year,  a 
famous  Washington  correspondent  for  a  well-known  New 
York  newspaper  received  $5,000  a  year,  and  one  reading 
the  lists  is  continually  startled  by  the  recurrence  of  names 
that  are  also  the  names  of  senators  and  public  officers  very 
prominent  in  their  day. 

All  of  these  expenditures  are  unexplained  otherwise  than 
as  "expenses"  or  "legal  expenses." 

But  the  final  light  as  to  Mr.  Huntington's  methods  in 
Washington  and  what  he  meant  by  "explaining  things"  is 
contained  in  the  following  remarkable  correspondence:19 

NEW  YORK,   November  6,   1874. 

FRIEND  COLTON  :  As  you  now  seem  to  be  one  of  us  I  shall  number 
your  letters,  or  rather  mine  to  you,  as  with  those  sent  to  my  other 
associates  in  California  *  *  *  I  notice  what  you  say  of  Hager 
and  Luttrell,  and  notwithstanding  what  T.  says,  I  know  he  can  be 
persuaded  to  do  what  is  right  in  relation  to  the  C.  P.  and  S.  P. 
but  some  political  friend  must  see  him,  and  not  a  railroad  man,  for 
if  any  of  our  men  went  to  see  him  he  would  be  sure  to  lie  about  it 
and  say  that  money  was  offered  him,  but  some  friend  must  see 
him  and  give  him  solid  reasons  why  he  should  help  his  friends. 
Yours  truly,  C.  P.  HUNTINGTON. 


"  Evidence  in  Ellen  M.  Colton  versus  Stanford,  et  al. 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  181 

The  congressional  directories  give  the  names  of  John  S. 
Hager,  of  San  Francisco,  as  a  Senator  from  California  in 
the  Forty-third  Congress  and  John  K.  Luttrell,  of  Santa 
Rosa,  as  a  Representative  in  the  Forty-fifth  Congress. 

NEW  YORK,  November  20,  1874. 

FRIEND  COLTON:  Herewith  I  send  you  copy  of  bill  that  Tom 
Scott  proposes  to  put  through  Congress  this  winter.  Now  I  wish 
you  would  at  once  get  as  many  of  the  associates  together  as  you  can 
and  let  me  know  what  you  then  want.  Scott  sent  me  these  copies 
fixed  as  he  wants  them  and  asked  me  to  help  him  pass  them  through 
Congress,  or  if  I  would  not  do  it  as  he  has  fixed  them,  then  he 
asked  me  to  fix  it  so  that  I  will,  or  in  a  way  that  I  will  support  it. 

Now  do  attend  to  this  at  once  and  in  the  meantime  I  will  fix 
it  here  and  then  see  how  near  we  are  together  when  yours  gets 
here.  Scott  is  prepared  to  pay  or  promises  to  pay  a  large  amount  of 
money  to  pass  his  bill,  but  I  do  not  think  he  can  pass  it,  although  I 
think  that  this  coming  session  of  Congress  will  be  composed  of  the 

hungriest  set  of  men  that  ever  got  together  and  the  d only  knowt 

what  they  will  do.  *  *  * 

Would  it  not  be  well  for  you  to  send  some  party  down  to  Arizona 
to  get  a  bill  to  build  in  the  Territorial  legislature  granting  the  right 
to  build  a  R.  R.  east  from  the  Colorado  River  (leaving  the  river 
near  Fort  Mojave),  have  the  franchise  free  from  taxation  on  its 
property  and  so  that  the  rates  of  fare  and  freight  cannot  be  in- 
terfered with  until  the  dividends  of  the  common  stock  shall  ex- 
ceed ten  per  cent?  I  think  that  would  be  as  good  as  a  land  grant. 
It  would  not  do  to  have  it  known  that  we  had  any  interest  in  it, 
for  the  reason  that  it  would  cost  us  much  more  money  to  get 
such  a  bill  through  if  it  was  known  that  it  was  for  us.  And  then 
Scott  would  fight  it  if  he  thought  we  had  anything  to  do  with  it 
If  such  a  bill  was  passed,  I  think  there  could  at  least  be  got  from 
Congress  a  wide  strip  for  right  of  way,  machine  shops,  etc.  Yours 
truly,  C.  P.  HUNTINGTON. 

NEW   YORK,   December   1,   1874. 

FRIEND  COLTON:  Your  letters  of  November  20th,  21st  and  22d 
are  received.  *  *  *  Has  any  of  our  people  endeavored  to  do  any- 
thing with  Low  and  Frisbie?  They  are  both  men  that  can  be  con- 
vinced. *  *  *  I  will  see  Luttrell  when  he  comes  over  and  talk  with 
him,  and  maybe  he  and  we  can  work  together,  but  if  we  can  brush 
him  out  it  would  have  a  good  effect  and  then  we  could  do  pr  at  least 


182  STORIES    OF    THE    GREAT    RAILROADS 

try  to  get  some  better  timber  to  work  with.  *  *  *  And  in  this  con- 
nection it  would  help  us  very  much  if  we  could  fix  up  California 
Pacific  income  and  extensions  on  the  basis  we  talked  of  even  if 
we  had  to  pay  something  to  convince  Lowe  and  Frisbie.  Yours  truly, 

C.  P.^  HUNTINGTON.  v 

NEW  YORK,  May  1,  1875. 

FRIEND  COLTON  :  Yours  of  the  17th  of  April,  No.  17,  is  received 
and  contents  carefully  noted.  *  *  *  I  notice  what  you  say  of  Lut- 
trell;  he  is  a  wild  hog;  don't  let  him  come  back  to  Washington,  but 
as  the  House  is  to  be  largely  Democratic,  and  if  he  was  to  be 
defeated,  likely  it  would  be  charged  to  us,  hence  I  should  think 
it  would  be  well  to  beat  him  with  a  Democrat ;  but  I  would  defeat 
him  anyway  and  if  he  got  the  nomination,  put  up  another  Democrat 
and  run  against  him,  and  in  that  way  elect  a  Republican.  Beat 
him.  Yours  truly,  C.  P.  HUNTINGTON. 

NEW  YORK,  September  27,  1875. 

FSIENB  COLTON:  Yours  of  the  18th  with  inclosure  as  stated  is 
received.  *  *  *  Scott  is  making  the  strongest  possible  effort  to 
pass  his  bill  the  coming  session  of  Congress.  *  *  *  If  we  had  a 
franchise  to  build  a  road  or  two  roads  through  Arizona  (we  con- 
tracting, but  having  it  in  the  name  of  another  party)  then  have 
some  party  in  Washington  to  make  a  local  fight  and  asking  for 
the  guarantee  of  their  bonds  by  the  United  States,  and  if  that 
could  not  be  obtained,  offering  to  build  the  road  without  any,  and 
it  could  be  used  against  Scott  in  such  a  way  that  I  do  not  believe 
any  politician  would  dare  vote  for  it.  Can  you  have  Safford  call 
the  legislature  together  and  grant  such  charters  as  we  want  at  a 
cost  of  say  $25,000?  If  we  could  get  such  a  charter  as  I  spoke 
of  to  you  it  would  be  worth  much  money  to  us.  *  *  *  Yours  truly, 
C.  P.  HUNTINGTON. 

Safford  was  Governor  of  Arizona. 

NEW  YORK,  October  19,  1875. 

FRIEND  COLTON:  I  have  given  Gilbert  C.  Walker  a  letter  to  you. 
He  is  a  member  of  the  forty-fourth  Congress,  ex-Governor  of  Vir- 
ginia, and  a  slippery  fellow,  and  I  rather  think  in  Scott's  interest, 
but  not  sure.  I  gave  him  a  pass  over  C.  P.  and  got  one  for  him 
on  U.  P.  So  do  the  best  you  can  with  him  but  do  not  trust  him 
much.  Yours  truly,  C.  P.  HUNTINGTON, 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  183 

The  Congressional  Directory  gives  the  name  of  Gilbert  C. 
Walker  of  Richmond,  Virginia,  as  a  member  of  the  Forty- 
fourth  Congress. 

NEW  YORK,  November  10,  1875. 

FRIEND  COLTON:  Dr.  Gwin  is  also  here.  I  think  the  doctor  can 
do  us  some  good  if  he  can  work  under  cover,  but  if  he  is  to  come 
to  the  surface  as  our  man  I  think  it  would  be  better  that  he  should 
not  come,  as  he  is  very  obnoxious  to  very  many  on  the  Republican 
side  of  the  House.  *  *  *  I  am,  however,  disposed  to  think  that 
Gwin  can  do  us  some  good;  but  not  as  our  agent  but  as  an  anti- 
subsidy  Democrat,  and  also  as  a  Southern  man  with  much  in- 
fluence. *  *  *  But  Gwin  must  not  be  known  as  our  man.  *  *  *  Yours 
etc.,  C.  P.  HUNTINGTON. 

William  M.  Gwin,  of  San  Francisco,  appears  in  the  Con- 
gressional directories  as  a  Senator  from  California  in  the 
Thirty-sixth  Congress. 

December  10,  1875. 

FRIEND  COLTON:  I  had  a  talk  with  Bristow,  Secretary  of  the 
Treasury.  He  will  be  likely  to  help  us  fix  up  our  matters  with  the 
government  on  a  fair  basis.  Yours  truly,  C.  P.  HUNTINGTON. 

Benjamin  H.  Bristow,  of  Kentucky,  was  Secretary  of 
the  Treasury  in  the  second  administration  of  Grant. 

Here  are  extracts  from  other  letters  signed,  "Yours 
truly,  C.  P.  Huntington,"  and  addressed  "Friend  Colton:" 

NEW  YORK,  December  22,  1875. 

*  *  *  I  think  the  Doctor  will  return  to  California  in  January. 
I  have  just  returned  from  Washington.  The  doctor  [Gwin]  was  un- 
fortunate about  the  R.  R.  committee ;  that  is,  there  was  not  a  man 
put  on  the  committee  that  was  on  his  list,  and  I  must  say  that  I 
was  deceived  and  he  was  often  with  Kerr  and  K  was  at  his  rooms 
and  spent  nearly  one  evening.  The  committee  is  not  necessarily 
a  Texas  Pacific,  but  it  is  a  commercial  com.  and  I  have  not  much 
fear  but  that  they  can  be  convinced  that  ours  is  the  right  bill  for 
the  country.  If  things  could  have  been  left  as  we  fixed  them  last 
winter  there  would  have  been  little  difficulty  in  defeating  Scott's 
bill ;  but  their  only  argument  is  it  is  controlled  by  the  Central.  That 
does  not  amount  to  much  beyond  this :  It  allows  members  to  vote 


184  STORIES    OF    THE    GREAT    RAILROADS 

for  Scott's  bill  for  one  reason,  and  give  the  other,  that  it  was  to 
break  up  a  great  monopoly,  etc.  If  these  damn  interviewers  would 
keep  out  of  the  way  it  would  be  much  easier  traveling. 

Michael  C.  Kerr,  of  Indiana,  was  Speaker  of  the  House. 

"Yours  of  December  30th  and  the  1st  inst,  Nos.  120  and  121  re- 
ceived ;  also  your  telegram  that  William  B.  Carr  has  had  for  his 
services  $60,000  S.  P.  bonds;  then  asking  how  much  more  I  think 
his  services  are  worth  for  the  future.  That  is  a  very  difficult  ques- 
tion to  answer  as  I  do  not  know  how  many  years  Mr.  Carr  has 
been  in  our  employ  or  how  far  in  the  future  we  should  want 
him.  In  view  of  the  many  things  we  now  have  before  Congress, 
and  also  in  this  sinking  fund  that  we  wish  to  establish,  in  which 
we  propose  to  put  all  the  company's  lands  in  Utah  and  Nevada, 
it  is  very  important  that  his  friends  in  Washington  should  be  with 
us,  and  if  that  could  be  brought  about  by  paying  Carr,  say  $10,000 
to  $20,000  per  year,  I  think  we  could  afford  to  do  it,  but  of  course 
not  until  he  had  controlled  his  friends.  They  could  hurt  us  very 
much  in  this  land  matter,  although  I  would  not  propose  to  put 
the  land  in  at  any  more  than  it  is  worth,  say  $2.50  an  acre.  I 
would  like  to  have  you  get  a  written  proposition  from  Carr  in 
which  he  would  agree  to  control  his  friends  for  a  fixed  sum,  then 
send  it  to  me.  *  *  * 

William  B.  Carr  was  an  influential  politician  in  San  Fran- 
cisco. 

NEW  YORK,  January  17,  1876. 

*  *    *    I    have    received    several    letters    and    telegrams    from 
Washington  today,  all  calling  me  there,  as  Scott  will  certainly  pass 
his  Texas  Pacific  bill  if  I  do  not  come  over  and  I  shall  go  over  to- 
night, but  I  think  he  could  not  pass  his  bill  if  I  should  help  him ;  but 
of  course  I  cannot  know  this  for  certain,  and  just  what  effort  to 
make  against  him  is  what  troubles  me.    It  costs  money  to  fix  things 
so  that  I  would  know  that  his  bill  would  not  pass.     I  believe  with 
$200,000  I  can  pass  our  bill,  but  I  take  it  that  it  is  not  worth  this 
much  to  us. 

NEW  YORK,  January  29,  1876. 

*  *  *  Then  on  our  side  we  have  Sargent,  Booth,  Jones,  G«*er 
and  Gorham  in  the  Senate  to  help  us.  *  *  *  Scott  is  working  mostly 
among  the  commercial  men.  He  switched  Senator  Spencer  of  Ala- 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  185 

bama,  and  Walker  of  Virginia,  this  week,  but  you  know  they  can 
be  switched  back  with  proper  arguments  when  they  are  wanted; 
but  Scott  is  asking  for  so  much  that  he  can  promise  largely  to  pay 
when  he  wins,  and  you  know  I  keep  on  high  ground.  All  the 
members  in  the  House  from  California  are  doing  first  rate  ex- 
cept Piper,  and  he  is  a  damned  hog;  anyway  you  can  fix  him. 
I  wish  you  would  write  a  letter  to  Luttrell  saying  that  I  say  he  is 
doing  first  rate,  and  is  very  able,  etc.,  and  send  me  a  copy. 

According  to  the  congressional  directories  Aaron  A.  Sar- 
gent and  Newton  Booth  were  Senators  from  California. 
John  P.  Jones  was  a  Senator  from  Nevada.  Cornelius 
Cole  had  been  a  Senator  from  California  in  the  Forty-third 
Congress.  George  C.  Gorham  was  Secretary  of  the  Sen- 
ate. The  name  "George  C.  Gorham,"  appears  in  the  Hunt- 
ington  accounts.  George  E.  Spencer  was  a  Senator  from 
Alabama  in  the  Forty-fifth  Congress.  Gilbert  C.  Walker 
was  a  Representative  from  Virginia.  William  A.  Piper 
was  a  Representative  from  California.  He  was  of  radical 
views.  By  this  time  it  would  seem  that  Luttrell  had  been 
convinced. 

NEW  YORK,  April  27,  1876. 

*  *  *  Scott  has  several  parties  here  that  I  think  do  nothing  else 
except  write  articles  against  the  Central  Pacific  and  its  managers, 
then  get  them  published  in  such  papers  as  he  can  get  to  publish 
them  at  small  cost,  then  sends  the  papers  everywhere,  and  there 
is  no  doubt  that  he  has  done  much  to  turn  public  sentiment  against 
us.  If  it  was  known  that  the  C.  P.  did  not  control  the  S.  P. 
I  think  we  could  beat  him  all  the  time,  although  he  has  about  the 
same  advantages  over  us  in  Washington  that  we  have  over  him 
in  Sac.  [Sacramento].  If  he  wants  some  committeeman  away  he 
gets  some  fellow  (his  next  friend)  to  ask  him  to  take  a  ride  to 
New  York  or  anywhere  else,  of  course  on  a  free  pass,  and  away 
they  go  together.  Then  Scott  has  always  been  very  liberal  in  such 
matters.  Scott  got  a  large  number  of  that  drunken,  worthless  dog 
Piper's  speeches  printed  and  sent  them  broadcast  over  the  country. 
He  has  flooded  Texas  with  them.  The  Sac.  Record-Union  hurts  us 
very  much  by  abusing  our  best  friends.  There  was  a  no.  [number] 
of  that  paper  came  over  some  little  time  since  that  abused  Conk- 
ling,  Stewart  and  some  other  of  our  friends,  with  Bristow's 


186  STORIES    OF    THE    GREAT    RAILROADS 

name  up  for  president.  *  *  *  If  I  owned  the  paper  I  would  control 
it  or  burn  it.  *  *  * 

Roscoe  Conkling  was  a  Senator  from  New  York.  His 
name  occurs  in  the  Huntington  accounts.  William  M.  Stew- 
art was  a  Senator  from  Nevada.  Bristow  was  a  prominent 
candidate  for  the  Presidency;  at  the  time  this  letter  was 
written,  he  was  Secretary  of  the  Treasury.  The  Sacramento 
Record-Union  was  at  that  time  a  railroad  organ. 

NEW  YORK,  May  2,  1876. 

Herewith  I  send  copy  of  telegraphic  dispatch  that  came  over 
yesterday.  Who  is  this  Webster?  Is  it  not  possible  to  control 
the  agent  of  the  Associated  Press  in  San  Francisco?  The  matters 
that  hurt  the  C  P.  and  S.  P.  most  here  are  the  dispatches  that 
I  come  from  S.  F.  [San  Francisco].  Scott  has  a  wonderful  power 
^over  the  press,  which  I  suppose  he  has  got  by  giving  them  free 
passes  for  many  years  over  his  roads.  *  *  * 

NEW  YORK,  May  12,  1876. 

*  *  *  I  sent  Hopkins  an  article  yesterday  cut  from  the  Com- 
mercial Advertiser;20  today  I   met   one   of  the   editors,   Norcutt; 
he  told  me  Scott  paid  for  having  it  published;  that  he  would  not 
have  let  it  gone  into  the  papers  if  it  had  been  left  to  him,  etc.  *  *  * 

NEW  YORK,  June  7,   1876. 

*  *  *  I  hope  Luttrell  will  be-  sent  back  to  Congress.     It  would        . 
be  a  misfortune  if  he  were  not.     Wigginton  has  not  always  been  ^ 
right,  but  he  is  a  good  fellow  and  is  growing  every  day.     Page 

is  always  right,  and  it  would  be  a  misfortune,  to  California  not 
to  have  him  in  Congress.  Piper  is  a  damned  hog  and  should  not 
come  back.  It  is  shame  enough  for  a  great  commercial  city  like 
S.  F.  to  send  a  scavenger  like  him  to  Congress  once.  *  *  * 

NEW  YORK,  June  12,  1876. 

*  *  *  I  notice  what  you  say  of  Wigginton,.  Luttrell  and  Piper. 
The  latter  should  be  defeated  at  almost  any  cost. 

Peter  D.  Wigginton,  of  Merced,  and  Horace  F.  Page,  of 
Placerville,  were  Representatives  from  California  in  the 
Forty-fifth  Congress. 

*°This  newspaper  has  passed  into  new  hands  since  the  date  of 
this  letter. 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  187 

June  24,   1876. 

Parrott  (Gorham)  is,  or  was,  writing  a  brief  on  fares  and 
freight  to  influence,  I  was  told,  one  of  the  judges  of  the  Supreme 
Court.  They  are  sure  to  do  their  worst  but  my  better  judgment 
tells  me  to  take  the  scamps  into  camp. 

NEW  YORK,  March  7,  1877. 

*  *  *  I   notice  you   are  looking  after  the   state   railroad  com- 
missioners.   I  think  it  is  time.  *  *  *  I  stayed  on  in  Washington  two 
days  to  fix  up  R.  R.  Committee  in  the  Senate.     Scott  was  there 
working  for  the  same  thing,  but  I  beat  him  for  once,  certain,  as 
the  committee  is  just  as  we  want  it,  which  is  a  very  important  thing 
for  us.  *  *  * 

March  14,  1877. 

*  *  *  After  the  Senate  R.  R.  Committee   was  made  up  Scott 
went  to  Washington  in  a  special  train,  and  got  one  of  our  men  off 
and  one  of  his  on,  but  they  did  not  give  him  the  com.     Gordon  of 
Georgia,  was  taken  off,  and  Bogy  of  Missouri,  put  on. 

John  B.  Gordon,  of  Atlanta,  was  a  Senator  from  Georgia ; 
Lewis  V.  Bogy,  of  St.  Louis,  was  a  Senator  from  Missouri 
in  the  Forty-fifth  Congress. 

I  gave  today  a  letter  to  Senator  Conover  of  Florida.  He  is  a 
good  fellow  enough  and  our  friend  after  he  is  convinced  we  are 
right. 

Simon  P.  Conover  was  a  Senator  from  Florida  in  the 
Forty-fifth  Comgress. 

NEW  YORK,  March  24,  1877. 

*  *  *  You  write :  "Our  receipts  are  not  enough  to  meet  payrolls 
and  imperative  demands  here."  I  have  no  knowledge  of  what  the 
receipts  have  been  this  month,  but  for  January  and  February,  this 
year,  on  all  our  roads,  they  were  nearly  three  millions  of  dollars, 
which  was  nearly  $400,000  more  than  in  the  same  months  of  1876 
and  one-half  must  have  been  profits. 

Million  and  a  half  profits  in  two  months ! 

April  3,  1877. 

*  *  *  We  should  be  very  careful  to  get  a  U.  S.  Senator  from 
Cal.    that   will   be    disposed   to    use  'us    fairly   and    then    have   the 


188  STORIES    OF    THE    GREAT    RAILROADS 

power  to  help  us.  Sargent,  I  thin-:,  will  be  friendly,  and  there  is 
no  man  in  the  Senate  that  cai!*  push  a  measure  farther  than 
he.  *  *  * 

Aaron  A.  Sargent  was  a  Senator  from  California  in  the 
Forty-fifth  Congress. 

NEW  YORK,  April  20,  1877. 

I  wrote  Crocker  on  the  12th  inst.,  in  relation  to  Jones'  Los 
Angeles  road.  A  few  days  after  I  saw  Jones  I  met  Gould.  He  told 
me  Keene  had  bought  it  [meaning  the  railroad  at  Los  Angeles 
owned  by  Senator  Jones  of  Nevada].  Of  course,  I  said  I  was  glad 
to  hear  it,  as  we  did  not  want  the  road  at  any  price;  that  I  made 
Jones  an  offer  for  it  because  we  wanted  him  to  help  us  with  oyj- 
(C.  P.  and  U.  P.)  sinking  fund  bill  in  Congress,  and  was  very  glad 
it  [the  railroad]  had  got  out  of  the  way,  and  that  I  saw  nothing 
now  to  prevent  friendly  relations  between  Jones  and  ourselves,  etc. 

On  the  Sunday  following  A.  A.  Selover  came  to  my  house  and 
said  he  came  from  Gould  and  Keene  and  that  in  the  panic  or 
break  in  Panama  a  few  days  before  Jones  would  have  broken  if 
G.  and  K.  had  not  come  in  to  help  him  out,  and  to  do  it  they 
had  to  take  Jones'  railroad,  etc.,  and  he  asked  me,  after  some 
beating  about,  if  we  wanted  the  road  at  $480,000.  I  told  him  that 
we  did  not  want  it  at  all  but  that  we  would  take  it  so  as  to  work 
in  harmony  with  Jones,  and  that  I  had  made  him  an  offer  as  I 
wrote  Crocker,  and  my  impression  was  our  people  would  do  that 
now,  but  I  was  quite  sure  we  would  rather  G.  and  K.  would  keep 
the  road,  if  by  that  Jones  could  be  made  our  friend,  etc.  What  do 
you  think  of  all  this?  I  am  rather  disposed  to  think  G.  and  K. 
have  not  bought  the  road  but  hold  it  as  collateral. 

NEW  YORK,  May  7,  1877. 

*  *  *  I  notice  what  you  say  of  Conover,  the  Florida  Senator. 
He  is  a  clever  fellow  but  don't  go  any  money  on  him.  *  *  *  The 
$70,000  that  I  let  Jones  have  are  tied  up  for  ten  years.  I  think  we 
can  make  more  than  the  interest  on  the  amount  paid  for  Jones' 
road  out  of  our  other  roads  by  not  running  the  Jones  road  at  all; 
and  Jones  is  very  good-natured  now  and  we  need  his  help  in 
Congress  very  much;  and  I  have  no  doubt  we  shall  have  it.  We 
must  have  friends  in  Congress  from  the  West  coast,  as  it  is  very 
important,  I  think,  that  we  kill  the  open  highway,  and  get  a  fair 
sinking  fund  bill  by  which  we  can  get  time  beyond  the  maturity  of 
the  bonds  that  the  government  loaned  us  to  pay  the  indebtedness; 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  189 

and  I  think  if  any  Republican  is  elected  in  Sargent's  place,  he 
(Sargent)  is  worth  to  us,  if  he  comes  back  as  our  friend,  as  much 
as  any  six  new  men,  and  he  should  be  returned. 

NEW  YORK,  May  15,  1877.       CQ. 

Yours  of  the  7th  inst.  is  received.  I  am  glad  you  are  paying 
some  attention  to  General  Taylor  and  Mr.  Kasson.  Taylor  can  do 
us  much  good  in  the  south.  I  think,  by  the  way,  he  would  like  to 
get  some  position  with  us  in  Cal.  Mr.  Kasson  has  always  been 
our  friend  in  Congress  and  as  he  is  a  very  able  man,  has  been 

able  to  do  us  much  good  and  he  has  never  21  us  one  dollar. 

I  think  I  have  written  you  before  about  Senator  Conover.  He 
may  want  to  borrow  some  money,  but  we  are  so  short  this  summer 
I  do  not  see  how  we  can  let  him  have  any  in  Cal. 

I  have  just  given  Senator  Ingalls,  of  Kansas,  a  letter  to  you. 
He  is  a  good  fellow  and  can  do  us  much  good.  *  *  *  Senator  Mor- 
ton is  coming  over;  also  his  brother-in-law,  Burbank.  They  are 
good  fellows,  but  B.  means  business,  not  here  but  in  W. 

Scott  is  working  everywhere  for  his  open  highway,  but  I  think 
we  can  beat  him;  but  it  will  cost  money. 

The  Congressional  Directory  gives  the  name  of  Oliver  P. 
Morton  as  a  Senator  from  Indiana. 

June  1,  1877.      C4 

*  *  *  There  has  been  quite  a  number  of  Senators  and  M.  C.  in 
the  office  here  in  the  last  few  days ;  they  all  say  Scott  is  making  his 
greatest  effort  on  his  Texas  and  Pacific  (open  highway)  and  most 
of  them  think  he  will  pass  it;  this  man  Hayes,  most  people  say, 
isafor  it  to  conciliate  the  South  |  he  may  be,  but  I  hardly  believe 
he  is;  but  I  have  no  doubt  he  is  for  many  things  he  should  not 
be  for.  *  *  * 

The  reference  is  to  President  Hayes. 

NEW  YORK,  September  10,  1877. 

FRIEND  COLTON  :  *  *  *  As  to  Colonel  Hyde  writing  a  report  about 
the  harbor  of  San  Diego.  I  would  like  such  a  report  as  he  could 


21  See  Pacific  Railroad  Commission  Report,  p.  3851.  In  the 
original  the  word  left  blank  here  is  said  to  look  like  "cost."  Some 
authorities  agreed  to  accept  it  as  "lost,"  which  although  it  seems 
to  make  no  sense  had  doubtless  a  more  dulcet  sound  in  some  ears. 
John  A.  Kasson,  of  Des  Moines,  was  a  Representative  from  Iowa 
and  later  United  States  Minister  to  Austria.  John  J.  Ingalls,  of 
Atchison,  was  a  Senator  from  Kansas. 


190  STORIES    OF    THE    GREAT    RAILROADS 

write,  and  if  he  would  write  one  to  suit  for  $250  I  would  give  it, 
and  if  he  would  not  we  shall  have  to  go  without  it.  *  *  * 

(Letter  of  March  4,  1878,  suggested  that  army  officers  be 
let  in  on  the  Oakland  water  front  iob.) 

NEW  YORK,  October  5,  1877. 

Yours,  No.  15,  is  received.  I  notice  your  remarks  on  our  matter 
in  Cal.  I  have  no  doubt  there  is  many  things  to  annoy  you.  The 
dispatches  about  crossing  the  Colorado  come  over  very  well.  I 
think  Gould  has  had  as  much  to  do  with  stopping  us  on  the  bridge 
as  Scott  has,  although  I  have  had  no  reason  for  so  thinking  up 
to  this  morning  (see  clip  from  Tribune),  except  Jim  Wilson,  of 
Iowa,  is  their  man,  and  has  much  influence  with  McCrary. 

Sec.  of  War  was  in  Washington  when  the  first  order  went  out 
to  stop  work  on  the  bridge,  and  Gould  came  in  twice,  and  Dillon 
once,  to  tell  me  that  the  Sec.  of  the  Interior  had  his  war  paint  on 
and  was  to  attack  us  in  his  message,  etc.,  etc.  I  thought  at  the 
time  they  were  trying  to  cover  up  something,  and  rather  supposed 
it  was  to  check  us  on  S.  P.  *  *  * 

George  W.  McCrary,  of  Iowa,  was  Secretary  of  War  in 
the  administration  of  Hayes.  Carl  Schurz  was  Secretary 
of  the  Interior  in  the  same  administration.  The  bridge  was 
at  a  government  reservation.  McCrary  and  Schurz  stopped 
it.  James  Wilson,  of  Traer,  was  a  Representative  from 
Iowa  in  the  Forty-fourth  Congress.  According  to  "Who's 
Who,"  the  home  of  James  Wilson,  at  present  Secretary  of 
Agriculture,  is  at  Traer,  Tama  County,  Iowa,  and  he  was 
in  Congress  from  1873  to  1877  and  from  1883  to  1885. 

NEW  YORK,  October  20,  1877. 

*  *  *  I  think  Safford  had  better  be  in  Washington  at  the  com- 
mencement of  the  regular  session,  to  get  Congress  to  confirm  the 
Acts  of  Arizona. 

I  saw  Axtell,  Governor  of  New  Mexico,  and  he  said  he  thought 
if  we  would  send  to  him  such  a  bill  as  we  wanted  to  have  passed 
into  a  law,  he  could  get  it  passed  with  very  little  or  no  money  ; 
when  if  we  sent  a  man  there  they  would  stick  him  for  large 
amounts.  *  *  * 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  191 

October  30,  1877. 

*  *  *  The  committees  are  made  up  for  the  Forty-fifth  Congress.  ^ 
(  think  the  R.  R.  Com.  is  right,  but  the  Com.  on  Territories  I  do 
tot  like.    A  different  one  was  promised  me.  *  *  *  I  think  there 
never  was  so  many  strikers  in  Washington  before. 

November  9,  1877. 

*  *  *  I  do  not  think  we  can  get  any  legislation  this  session 
for  extension  of  land  grants  or  for  changing  line  of  road  unless 
we  pay  more  for  it  than  it  is  worth.  *  *  *  Some  parties  are  making 
great  effort  to  pass  a  bill  through  Congress  that  will  compel  the 
U.   P.  and  C.   P.  to  pay  large  sums  into  a  sinking  fund,  and  I 
have  some  fears  that  such  a  bill  may  pass.    Jim  Keene  and  others 
of  Jay  Gould's  enemies  are  in  it  and  will  pay  money  to  pass. 

NEW  YORK,  November  15,  1877. 

*  *  *  If  we  are  not  hurt  this  session  it  will  oecause  we  pay 
much  money  to  prevent  it,  and  you  know  how  nard  it  is  to  get 
it  to  pay  for  such  purposes.  *  *  *  I  think  Congress  will  try  very 
hard  to  pass  some  kind  of  bill  to  make  us  commence  paying  on 
what  we  owe  the  government.  *  *  *  Every  year  the  fight  grows* 
more  and  more  expensive.    *  *  * 

NEW  YORK,  November  22,  1877. 

*  *  *  Matters  never  looked  worse  in  Washington  than  they  do 
at  this  time.    It  seems  as  though  all  the  strikers  in  the  world  were 
there.     I  send  with  this  copy  of  one  of  their  letters   I  received 
yesterday,  all  of  the  some  tenor.     The  one  I   send  is  from  ex- 
Senator  Pomeroy. 

The  inclosure  in  a  letter  of  advice  from  Pomeroy  to 
Huntington,  outlining  a  scheme  by  which  Congress  could 
be  controlled  for  the  railroad,  and  closing  with  fulsome  ex- 
pressions. For  Pomeroy,  see  Mark  Twain's  "Gilded  Age ;" 
also  Mr.  Huntington's  accounts  for  1876.  Pomeroy  had 
been  a  Senator  from  Kansas  in  the  Forty-third  Congress. 

November  24,   1877. 

*  *  *  I  notice  what  you  write  of  the  Santa  Monica  road.     I 
am   satisfied  with  that  trade  and  when  you  write   pay  Jones  no 
part  of  the  $25,000,  because  there  is  an  unsettled  account  of,  say, 
$6,000,  I  think  you   forget  his  position.     I    have    paid    him    the 
$25,000  a?  he  told  me  he  needed  it  very  much.    Jones  can  do  us  much 
gcod  and  says  ht  will. 


192  STORIES    OF    THE    GREAT    RAILROADS 

December  5,  1877. 

*  *  *  I  have  just  received  telegram  from  Washington  that  Mat- 
thews and   Windom   have  been   put  on   Senate   R.   R.   Committee 
in  place  of  Howe  and  Ferry.    This  looks  as  though  the  Texas  and 
P.    had   control   of   the    Senate   as    far   as    appointing   corns,   are 
concerned.     I  am  not  happy  today. 

Stanley  Matthews,  of  Cincinnati,  was  a  Senator  from 
Ohio;  William  Windom,  of  Winona,  was  a  Senator  from 
Minnesota;  Timothy  O.  Howe,  of  Green  Bay,  was  a  Sena- 
tor from  Wisconsin;  Thomas  W.  Ferry,  of  Grand  Haven, 
was  a  Senator  from  Michigan. 

December  17,  1877. 

*  *  *  The  Texas  and  P.  Company  have  been  fighting  us  for 
years,  but  have  had  but  little  money,   but  have  used  passes  and 
promises  largely;  but  the  latter,  as  they  say,  is  about  played  out, 
and  some  little  time  ago  they  joined  teams,  as  I  am  told,  with  the 
North [ern]    P[acific].     They   had   a   little  money  to   use   as   they 
had  no  mortgage  on  floating  debt  as  I  am  told.    They  have  made  a 
little   money   on   this   end   of   their   road   and    I   think   are   using 
it.     Jay  Gould  went  to  Washington  about  two  weeks  since  and  I 
know  saw  Mitchell,  Senator  from  Oregon,  since  which  time  money 
has  been  used  very  freely  in  Washington  and  some  parties  have  been 
hard  at  work  at  the  T.  &  P. — N.  P.,  that  never  work  except  for 
ready  cash  and  Senator  Mitchell  is  not  for  us  as  he  was,  although 
he  says  he  is,  but  I  know  he  is  not.    Gould  has  large  amounts  of 
cash  and  he  pays  it  without  stint  to  carry  his  points.  *  *  * 

John  H.  Mitchell,  of  Portland,  was  a  Senator  from 
Oregon. 

January  12,  1878. 

*  *  *  Matters  do  not  look  well  in  Washington,  but  I  think  we 
shall  not  be  much  hurt,  although  the  boys  are  very  hungry  and  it 
will  cost  considerably  to  be  saved. 

>  t 

January  22,  1878. 

*  *  *  The  World  again  published  today  that  the  C.  P.  and  S.  P. 
t  .^[Central  Pacific  and  Southern  Pacific]  owe  fourteen  millions  float- 
ing debt,  and  it  hurts  us  very  much,  and  I  don't  see  how  we  can 
carry  our  floating  debt  here  unless  this  debt  can  in  some  way  be 
transferred;  that  is  the  larger  portion  of  it.     The  World  is  con- 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON  193 

trolled  by  Tom  Scott.22  A.  few  months  ago  I  could  have  had  it  in 
our  interest,  by  paying  its  losses,  or  in  other  words,  paying  the 
bills  that  they  [The  World]  could  not  pay,  which  would  be  from 
$2,000  to  $5,000  a  month.  I  did  not  think  it  wise  to  do  it.  *  *  * 

February   23,    1878. 

*  *  *  The  Sub.  Com.  of  the  R.  R.  Com.  of  the  House  have  agreed 
to  report  Scott's  T.  and  P.  Bills  through  to  San  Diego  and  I  am 
disposed  to  think  the  full  Com.  will  report  it  to  the  House.    It  can 
be  stopped  but  I  doubt  whether  it  would  be  worth  the  cost.  *  *  * 
Scott  no  doubt  will  promise  all  the,  say  $40,000,000,  that  the  act 
would  give  him.  *  *  * 

NEW  YORK,  May  3,  1878. 

*  *  *  The  Texas  and  Pacific  folks  are  working  hard  on  their 
bill,  and  say  they  are  sure  to  pass  it,  but  I  do  not  believe  it.    They 
offered  one  M.  C  one  thousand  dollars  cash  down,  five  thousand 
when  the  bill  passed,  and  ten  thousand  of  the  bonds  when  they  got 
them,  if  he  would  vote  for  the  bill. 

NEW  YORK,  June  30,  1878. 

I  think  your  letter  to  McFarland  was  good.  *  *  *  I  think  in  all 
the  world's  history  never  before  was  such  a  wild  set  of  dema- 
gogues honored  with  the  name  of  Congress.  We  have  been  hurt 
some  but  some  of  the  worst  bills  have  been  defeated,  but  we  can- 
not stand  many  such  Congresses. 

NEW  YORK,  September  30,  1878. 

*  *  *  I  think  you  are  right  about  Field  not  sitting  in  the  Gal- 
latin  suit.  *  *  * 

Albert  Gallatin  had  been  a  member  of  the  firm  of  Hunt- 
ington  &  Hopkins  at  Sacramento.  He  brought  suit  to  pre- 
vent the  Central  Pacific  from  setting  aside  its  sinking  fund. 
Justice  Stephen  J.  Field  was  of  the  Supreme  Court  of  the 
United  States.  For  many  years  he  was  actively  supported 
in  some  quarters  for  the  Democratic  nomination  for  the 
presidency.  The  California  State  Democratic  convention 
of  1884,  held  at  Stockton,  considered  charges  against  Justice 

12  This  newspaper  had  undergone  changes  of  editorial  manage- 
ment and  ownership  since  the  date  of  this  letter. 


194         STORIES  OF  THE  GREAT  RAILROADS 

Field  based  upon  his  decisions  in  cases  wherein  the  South- 
ern Pacific  Railroad  was  interested.  As  a  result  of  these 
charges,  the  convention  formally  read  Justice  Field  out  of 
the  Democratic  party. 

I  have  used  the  past  tense  in  describing  the  political  deg- 
radation of  this  State  of  California,  but  I  might  as  well  have 
written  much  of  it  in  the  present.  Forms  have  changed 
somewhat  and  methods;  the  methods  of  the  railroad  com- 
pany remain  the  same. 

Still,  the  huge  political  machine  works  on  corrupting  and 
corrupting,  or  trying  to  corrupt.  Still,  the  railroad  boss 
operates  in  every  county,  and  still  the  head  spider  sits  in  his 
office  and  spins  his  evil  webs.  Since  the  political  revolution 
of  1910  that  put  Governor  Hiram  Johnson  at  the  head  of 
the  Republican  party,  the  railroad,  for  the  first  time  in  its 
history,  is  blocked  in  its  schemes.  But  its  aims  have  not 
changed. 

This  is  the  influence  that  brought  to  naught  the  work  of 
the  reformers  in  the  legislative  session  of  1909  as  graphi- 
cally described  in  Mr.  Franklin  Hichborne's  book  on  that 
subject.23  This  is  the  influence  that  expects  to  determine 
who  shall  be  the  next  governor,  who  shall  fill  every  office 
below  him,  who  shall  be  judges. 

Finally,  this  is  the  influence,  concealed  and  sinister,  that 
stopped  the  graft  prosecution  in  San  Francisco;  that  en- 
abled Calhoun,  Schmitz  and  the  rest  to  escape;  that  de- 
feated Francis  J.  Heney  at  the  polls ;  and  morally  this  is  the 
influence  responsible  for  the  hand  that  tried  to  assassinate 
him. 


""Story  of  the  Session  of  the  California  Legislature,"  by^Frank- 
lin  Hichborne,  San  Francisco;  1909.  It  is  really  a  most  meritorious 
work  and  ought  to  be  widely  noted. 


MR.  HUNTINGTON  WRITES  TO  FRIEND  COLTON 


195 


SOUTHERN       PACIFIC      DISBURSEMENTS      AT 

WASHINGTON      (WITHOUT     ADEQUATE 

VOUCHERS)   FOR  "EXPENSES." 


1872. 

Feb.    26.      C.    P.    Hunting- 

Tan.    13.     R.   Franchot  $ 

33.00 

ton    . 

5,000.00 

Jan.    18.     R.   Franchot  

13,200.00        Mch.   9.     I.    E.   Gates  

2,000.00 

Mch.    11.     C.   P.   Hunting- 

Mch.    12.     Jas.    H.   Storrs. 

1,125.35 

ton    

1,000.00 

Mch.  24.      [.    E.   Gates.., 

500.00 

Mch.    15.     R.   Franchot... 

1,000.00        Mch.  29.     I.   E.  Gates.... 

5,000.00 

Mch.  23.     C.   P.   Hunting- 
ton    

Apr.   23.     C.    H.    Sherrill.. 
500.00        May    9.      C.    H.    Sherrill.. 

15,000.00 
300.00 

Apr.    26.      C.    P.    Hunting- 

May   24.     I.    E.   Gates.... 

5,000.00 

ton    .. 

500.00 

June  2.     C.   H.   Sherrill... 

2,000.00 

May    11.      C.    P.    Hunting- 

fune  4.     C.  H.   Sherrill... 

1,000.00  • 

ton    

500.00 

June   30.      C.    P.    Hunting- 

• 

May    17.      C.    P.    Hunting- 

ton    

5,000.00 

ton    

1,000.00 

luly   2.     I.   E.    Gates  

200.00 

May    17.      R.    Franchot... 

5,000.00 

Sept.    5.      C.    P.    Hunting- 

Tune    5.      R.    Franchot  

5,000.00 

ton    

1,000.00 

July   31.      C.    P.    Hunting- 

Sept.    7.   "Legal   expenses" 

10,440.00 

ton    

500.00 

Sept.    15.     C.   P.   Hunting- 

Aug.    24.      C.    P.   Hunting- 

ton    

1,000.00 

ington     

500.00 

Sept.   20.     C.   P.   Hunting- 

Sept.   24.      R.    Franchot... 

19,295.50 

ton    . 

3,000.00 

Oct.   2.     I.    E.    Gates  

5,000.00        Oct.  5.     C.  P.   Huntington 

1,500.00 

Nov.  1.     I.  E.  Gates  
Nov.    IS.      C.   P.   Hunting- 

500.00        Oct.  15.  C.  P.  Hunttington 
Oct.    24.      C.    P.    Hunting- 

2,000.00 

ton    

1,000.00 

ton    . 

1,000.00 

Nov.   21.     I.   E.   Gates.... 

500.00        Oct.  26.     H.   Hopkins,  or- 

Nov.   29.     I.   E.   Gates.... 

4,000.00 

der    . 

5,000.  oa 

Dec.   28.     I.    E.   Gates  

200.00        Nov.    1.      Leland    Stanford 

83,418.08 

Dec.      31.        "Services     in 

Nov.  9.     I.   E.   Gates.., 

5,000.00 

1872"    

13,233.33       TSTov.   16,     I.   E.   Gates..    . 

5,000.00 

r>£>r>       8           11?        riotee 

2  500  00 

Total    $ 

72,461.83      \Dec.   18.     I.    E.  "Gates.'.'    ! 

s.'ooo.'oo 

1874. 

''  ; 

Dec.    19.     I.   E.   Gates.. 

1,000.00 

Tan.   13.     R.   Franchot  $ 

500.00        Dec.    26.      C.    P.    Hunting- 

Jan.    16.     I.    E.   Gates  

200.00 

ton    

2,000.00 

Mch.    14.     Fisk   &   Hatch. 

12,139.94 

Dec.     28.       Leland     Stan- 

.' 

May    14.      C.    P.    Hunting- 

enn  n(\ 

ford    

52,500.00 

June   15.     Fisk   &   Hatch. 

ouu.uu 
1,910.00 

Total    $279.483.43 

June   22.      C.    P.    Hunting- 

1878. 

ton    

June  27.     R.  Franchot.... 
July  9.     R.   Franchot  

20,000.00       Jan.  11.  C.  P.  Huntington.$ 
3,700.00       Jan.  28.     I.  E.  Gates 
150.00        Feb.    14.      L.   Stanford.... 

1,150.00 
1,600.00 
1,000.00 

July    10.      I.    E.    Gates  

200.00 

Feb.    20.      C.    P.    Hunting- 

July   11.     I.    E.    Gates.... 

200.00 

ton    . 

2,500.00 

Sept.    11.     C.    P.   Hunting- 

Mch.    18.      C.   P.    Htmting- 

5,000.00 

ton    

5,500.00 

Oct.    16.     I.   E.   Gates  

281.00 

Mch.   19.     C.    P.   Hunting- 

Oct.   23.     I.   E.   Gates  

200.00 

ton    . 

4,500.00 

Nov.      Gen.   Dwyer,   U.   S. 

Apr.    12.      I.    E.    Gates..    . 

1,750.00 

Commissioner     
Dec.  2.     "W.  A.  W.     paid 
by  C.   P.   Huntington... 
Dec.    29.      C.    P.    Hunting- 

1,000.00        Apr.    18.     I.    E.    Gates..    . 
May  4.     James  H.   Storrs. 
4,863.48        May  20.       .    E.    Gates..    . 
May   25.        .    E.    Gates..    . 

200.00 
1,000.00 
5,000.00 
1,500.00 

2,000.00        May  27.        .    E.    Gates..    . 

5,000.00 

^                                        

une    7.      L.    Stanford..    . 

13,000.00 

Total    $ 

52,844.42 

une  22.        .    E.    Gates..    . 

2,000.00 

1876. 

une  25.        .    E.    Gates.  .    . 

500.00 

Jan.   4.     N.   T.   Smith,   for 

une   28.      L.   Stanford..    .    111.431.25 

amount  paid  H.   Brown.  $ 

5,000.00 

une  29.      Joseph   H.    Bell. 

38,500.00 

Jan.    24.      C.    P.    Hunting- 

une   29.      C.    P.    Hunting- 

ton    

2,500.00 

99,167.20 

196 


STORIES    OF    THE    GREAT    RAILROADS 


Mch.  31.    I.  E.  Gates,... 
Apr.    1.      C.    P.    Hunting- 

5,000.00 
5,000.00 

5,000.00 
5,000.00 
25,000.00 
5,000.00 
5,000.00 
1,000.00 
1,000.00 
5,000.00 
10,000.00 

3,381.45 
3,000.00 
10,000.00 
2,000.00 
1,500.00 
600.00 
10,000.00 
15,698.92 
500.00 
2,500.00 

6,300.00 
5,000.00 
5,000.00 
1,000.00 
700.00 
1,000.00 
2,500.00 
8,000.00 
8,000.00 
1,000.00 
1,000.00 
1,000.00 

5,000.00 
3,000.00 
1,000.00 

178,180.37 

10,000.00 
5,000.00 
5,000.00 

26,000.00 
10,000.00 

Aug.  2.     A.  J.  Howell... 
Aug.   3.    James  A.   Georg 
Aug.    15.     C.    P.   Hunting 
ton      ... 

200.00 
;         300.00 

42,855.06 
3       1,166.66 
1          287.95 
200.00 
12,000.00 
200.00 
150.00 
1,000.00 
3,000.00 
1,500.00 
75.00 
1,200.00 
150.00 
5,000.00 
60.00 
2,000.00 
3,460.00 
200.00 
204.00 
200.00 
250.00 
5,000.00 
3,290.00 
2,000.00 
1,000.00 
300.00 
2,000.00 
6,000.00 
3,500.00 

3,000.00 
10,000.00 
10,000.00 
224.00 
1,083.98 
500.00 
1,500.00 
1,000.00 
75.00 
100.00 
500.00 
500.00 
200.00 
10,000.00 
2,800.00 
10,500.00 
100.00 
500.00 

Apr.    6.      C.    P.    Hunting- 

Aug.  15.    New  York  Item 
Aug.    19.    T.   M.   Norwooc 
Aug.    29.     John   Boyd  
Sept.   3.     Leland   Stanford 
Sept.  3.     A.  J.  Howell... 
Sept.    3.      J.    A.    George.. 
Sept.  4.     T.   M.  Norwood 
Sept.   4.     S.  T.   Gage  
Sept.   14.     I.   E.   Gates... 
Sept.    14.     O.   M.  Bradfon 
Sept.  23.     D.   D.   Colton. 
Sept.   23.      J.    A.    George. 
Sept.  27.     I.   E.  Gates... 
Sept.  27.     J.  G.  Prentiss. 
Sept.   28.     I.   E.   Gates... 
Oct.     .     D.  D.  Colton.  .. 
Oct            John   Boyd  

Apr.    19.      "Attorney"   fee. 
May  4.     Anna   Franchot.. 
May   12.     I.   E.   Gates.    .. 
May    15.      I.    E.    Gates.    .. 
May  19.     I.    E.   Gates.    .. 
lune    2.       S.     C.     Pomeroy 
June    3.      I.    E.    Gates.    .. 
June   19.      I.    E.    Gates.    .. 
June  —  .     New   York  news- 
papers,   Tribune,    Times. 
World    and    Bulletin  
July    19.      C.   H.   Sherrill.. 
July   26.      I.    E.    Gates  
July  12.     S.   L.  H.   Barlow 
Aug.    18.     R.   B.   Mitchell. 
Aug.   21.     S.   W.    Kellogg. 
Sept.    12.   Lyman  Trumball 
Sept.   —  .     R.    Franchot... 
Oct.  4.      C.   P.   Huntington 
Oct.   5.     C.   P.   Huntington 
Oct.    14.      C.    P.    Hunting- 

Oct.      .     John  Boyd  
Oct.     .     J.  A.   Howell... 
Oct.     .     J.  A.   George... 
Oct.   3.     I.    E.    Gates.... 
Oct.  4.     D.  D.  Colton... 
Oct    5      I    E    Gates  

Oct.    17.     I.    E.   Gates  
Oct.   21.     I.   E.   Gates.... 
Oct.   23.     I.    E.    Gates  
Oct.   26.     I.   E.   Gates  
Oct.   30.     I.   E.    Gates  
Oct.     10.      Legal    expenses 
Nov.   3.     D.   D.   Colton... 
Nov.   8.     D.   D.    Colton... 
Nov.   13.     I.   E.   Gates  
Nov.   14.     I.   E.   Gates  
Nov.   15.     I.   E.  Gates  
Nov.    16.     C.   P.   Hunting- 
ton    

Oct.    7.      I.    E.    Gates... 
Oct.  7.     J.    E.   Forney... 
Oct.    10.     I.    E.    Gates... 
Oct.   19.     I.   E.   Gates... 
Oct.   22.     I.    E.   Gates... 
Oct.    24.      C.    P.    Hunting 

Oct.   26.     I.    E.   Gates... 
Oct.   28.     I.    E.   Gates... 
Nov.    2.      John    Boyd.... 
Nov.  2      T.   M.   Norwood 
Nov.   11.     I.   E.   Gates... 
Nov.   13.     I.    E    Gates... 
Nov.    21.      C.    H.    Sherrill 
Nov.  21.     O.  M.  Bradford 
Nov.  22.     J.  A.  George.. 
Nov.   27,     I.   E.   Gates... 
Nov.   27.    T.   M.   Norwooc 
Dec.    2.      John    Boyd.... 
Dec.    5.      I.    E     Gates... 
Dec.    9.      I.    E.    Gates... 
Dec.    17.      I.    E.    Gates.. 
Dec.  23.     John  H.   Flagg 
Dec.  26.     1   E.   Gates... 

Dec    1      I    E    Gates  .... 

Dec    7      IE    Gates 

Total    .                       ,  .  .$" 

1877. 

Tan.   3.     "Legal"  expenses.$ 
Jan    8      I    E    Gates  

Tan.   15.    "Legal"  expenses 
Feb.    6.       Western    Devel- 
opment   Company  

Feb.  19.     I.  E.  Gates,,.. 

Total    $447,630.10 


CHAPTER  VIII. 

MRS.  COLTON  LEARNS  ABOUT  PHILANTHROPY. 

On  October  8,  1878,  General  David  D.  Colton  was 
brought  to  his  home  in  San  Francisco  suffering  from  a  peril- 
ous wound  that  he  had  received  either  in  some  mysterious 
accident  or  from  somebody's  dagger. 

Mrs.  Colton  was  then  in  New  York.  She  was  tele- 
graphed for  and  hastened  homeward  in  special  trains,  but 
could  not  reach  San  Francisco  until  October  14th,  five 
days  after  her  husband's  death. 

General  Colton  was  in  several  ways  remarkable,  but 
chiefly  as  the  only  man  that  Collis  P.  Huntingdon  seemed  to 
like  or  in  whom  he  placed  the  least  confidence.  For  two 
of  his  partners  Huntington  entertained  undisguised  con- 
tempt, and  for  the  third  (one  may  say)  a  kind  of  tolerance ; 
but  he  seemed  really  drawn  toward  Colton;  in  his  long 
career  almost  the  solitary  instance  of  human  weakness  and 
one  that  cost  him  dear. 

In  earlier  days  in  California,  Colton  had  been  a  rather 
picturesque  figure.  He  was  once  the  sheriff  of  Siskiyou 
County  and  in  that  capacity  had  bravely  withstood  and 
quelled  a  mob.  In  San  Francisco  he  practiced  law,  did 
some  work  for  the  multifarious  and  usually  shady  enter- 
prises of  the  Southern  Pacific,  organized  the  form  of  its 
plunder  that  was  called  the  Rocky  Mountain  Coal  and  Iron 
Company,  and  by  his  superior  cleverness,  won  Huntington's 
reluctant  regard. 

Before  long  he  was  admitted  to  the  partnership;  not,  of 
course,  to  all  of  the  good  things,  nor  to  many  of  them,  but 
to  choice  bits  that  made  him  a  millionaire.  Thus  when  the 

197 


198  STORIES    OF    THE    GREAT    RAILROADS 

Western  Development  Company  was  organized,  he  received 
a  one-ninth  share  of  that  precious  concern;  and  he  was 
president  of  and  held  much  stock  in  the  Rocky  Mountain 
Coal  and  Iron,  which  was  then  selling  to  the  Central  Pacific 
at  $8  a  ton  coal  that  was  worth  $4  or  less. 

General  Colton's  will  left  everything  to  Mrs.  Colton,  who 
was  appointed  sole  executrix.  She  had  known  almost 
nothing  about  his  business  and  she  was  greatly  prostrated 
by  his  sudden  death;  but  with  confidence  she  relied  upon 
his  late  associates,  who  had  been  his  and  her  dear  friends. 
As  she  wrote  to  Mr.  Huntington  in  the  early  days  of  her 
affliction,  "I  know  that  you  and  Mr.  Crocker  will  advise  and 
take  care  of  the  wife  of  David  D.  Colton."  Particularly  to 
her  near  neighbor,  Charles  Crocker,  she  looked  for  guid- 
ance, because  the  families  had  been  very  intimate.  When 
Mr.  and  Mrs.  Crocker  went  to  Europe,  Mrs.  Colton  took 
the  two  oldest  Crocker  boys  into  her  household  as  if  they 
were  her  own  children.1 

When  General  Colton  died — or  was  killed — Mr.  Crocker 
was  on  his  way  home  from  abroad.  He  spent  a  few  days 
in  New  York  and  conferred  there  with  Mr.  Huntington. 
On  the  night  of  his  arrival  in  San  Francisco,  Mrs.  Colton 
saw  with  great  relief  his  carriage  drive  up  to  his  door,  and 
at  once  sent  him  a  note  asking  him  to  come  to  see  her.  He 
excused  himself  for  that  night,  but  visited  her  the  next 
morning  and  wept  as  he  dwelt  upon  General  Colton's  splen- 
did qualities,  and  his  own  and  Mrs.  Colton's  great  loss,  by 
which  he  seemed  to  be  greatly  affected. 

Meanwhile,  Mr.  Charles  E.  Green,  General  Colton's  sec- 
retary, had  prepared  for  Mrs.  Colton  an  inventory  of  the 
estate.  It  showed  possession  of  the  following  securities  :2 


1  Colton  versus  Stanford  et  al.,  testimony,  pp.  2485-90. 
'  Many  of   these   securities   can   be   traced  by   reference  to  the 
Pacific  Railroad  Commission  Report,  testimony  of  Doughty,  p.  ,5256. 


MRS.  COLTON  LEARNS  ABOUT  PHILANTHROPY  199 

408  shares  Rocky  Mountain  Coal  and  Iron  stock. 
10,000  shares  Occidental  and  Oriental  Steamship  Company  stock. 
20,000  shares  Central  Pacific  Railroad  Company  stock. 
34,900  shares  Southern  Pacific  stock. 
5,555  5/9  shares  Western  Development  Company  stock. 
749  shares  Amador  Branch  Railroad  stock. 
Ill  shares  Berkeley  Branch  Railroad  stock. 
2,649  shares  California  Pacific  stock. 
556  shares  Colorado  Steam  Navigation  stock. 
650  First  Mortgage  Southern   Pacific  bonds,  $1,000  each. 
100  First  Mortgage  Southern   Pacific  bonds,  $500  each. 
75  First  Mortgage  Amador  Branch  bonds. 
11  First  Mortgage  Berkeley  Branch  bonds. 
3  Los  Angeles  County  Bridge  bonds. 

In  a  few  days  Mr.  Crocker  called  again,  and,  as  Mrs.  Col- 
ton  said  afterward,  she  was  impressed  with  a  great  change 
in  his  manner.  Apparently  he  has  mastered  his  grief  for 
his  dead  friend  and  his  lips  found  no  more  words  of  condo- 
lence for  the  widow.  On  the  contrary,  he  was  stern  and 
severe.3  He  said  austerely  that  General  Colton  had  left  his 
affairs  much  confused ;  that  he  was  in  debt  to  his  associates 
and  to  the  companies  with  which  he  had  been  connected; 
that  many  of  the  securities  in  his  estate  had  been  obtained 
by  means  of  a  dividend  of  the  Western  Development  Com- 
pany;4 that  this  dividend  had  been  improperly  declared  by 
General  Colton  without  warrant,  and  that  all  persons  shar- 
ing in  that  dividend  would  be  obliged  to  return  the  securi- 
ties received  from  it. 

"We  are  going  to  return  our  dividends,"  he  concluded, 
"and  as  you  have  got  to  return  yours,  you  had  better  do  so 
today — before  night.  Will  you?"5 


'Colton  versus  Stanford  et  al.,  testimony,  pp.  2485-90. 

4 1  take  this  to  be  the  dividend  of  September  4,  1877,  described 
in  a  previous  chapter.  More  than  a  year  seems  to  have  elapsed 
before  the  discovery  that  the  securities  must  be  returned — and  by 
the  way,  they  never  were  returned. 

6  Colton  versus  Stanford  et  al.,  testimony,  p.  2792. 


200  STORIES    OF    THE    GREAT    RAILROADS 

Mrs.  Colton,  being  much  taken  aback,  said  she  would 
seek  advice  and  decide  what  to  do.  Mr.  Crocker  went  on 
to  say  that  General  Colton,  a  short  time  before  his  death, 
had  subscribed  for  30,000  shares  of  a  new  issue  of  Southern 
Pacific  stock.  This  stock,  Mr.  Crocker  said,  would  be 
heavily  assessed  to  build  the  road.6  Of  course,  he  said,  she 
would  not  wish  to  pay  the  assessments  and  she  had  better 
cancel  the  subscription  at  once.  She  made  haste  to  say  that 
she  certainly  would,  and  he  went  his  way.7 

A  few  days  later  he  returned  and  his  manner  was  still 
more  forbidding.  He  said  (according  to  Mrs.  Colton)  that 
the  Western  Development  Company  was  insolvent,  heavily 
in  debt,  and  must  have  the  return  of  all  the  securities  in- 
cluded in  that  improper  dividend  to  which  he  had  before  re- 
ferred; that  General  Colton  owed  his  late  associates  $1,000,- 
000,  for  which  he  had  deposited  as  collateral  20,000  shares 
of  Central  Pacific8  and  20,000  shares  of  Southern  Pacific 
stock,  but  that  the  value  of  the  collateral  would  not  cover 
the  face  of  the  note ;  that  the  408  shares  of  Rocky  Mountain 
Coal  and  Iron  in  General  Colton's  effects  really  belonged  to 
his  four  associates,  being  held  in  trust  for  them ;  and  finally, 
that  General  Colton  proved  to  be  greatly  in  debt  to  all  the 
companies.  He  demanded  a  settlement  of  all  these  claims 
and  told  her  if  she  wished  she  could  have  them  verified  by 
her  personal  counsel. 


"I  can  find  no  indication  anywhere  that  this  stock  was  ever 
assessed,  and  certainly  there  was  not  the  slightest  reason  why  it 
should  be.  As  for  the  building  of  the  road,  that,  as  we  have  pre- 
viously seen,  was  provided  out  of  the  earnings  and  sinking  fund 
of  the  Central  Pacific  and  out  of  the  Western  Development  and 
Pacific  Improvement  Companies. 

'Colton  versus  Stanford  et  al.,  testimony,  p.  2797. 

8  In  1877  Central  Pacific  paid  8  per  cent  dividends.  Neither 
Central  Pacific  nor  Southern  Pacific  was  on  the  market,  both  being 
closely  held  by  Mr.  Stanford  and  his  friends.  An  8  per  cent  stock 
ought  to  be  worth  at  least  80,  at  which  price  General  Colton's 
Central  Pacific  collateral  would  be  worth  $1,600,000  without  consid- 
ering the  Southern  Pacific  stock,  which  is  now  worth  137. 


MRS.    COLTON    LEARNS    ABOUT    PHILANTHROPY          201 

Now,  Mrs.  Colton's  personal  counsel  was,  of  course,  her 
husband's  personal  counsel,  Mr.  Samuel  M.  Wilson,  whom 
Mr.  Crocker  had  highly  recommended.  Mr.  Wilson  was 
also  one  of  the  Central  Pacific's  regular  and  trusted  attor- 
neys ana,  according  to  subsequent  testimony,  in  receipt  of  a 
salary  of  $12,000  a  year  from  the  railroad  company.9  Mrs. 
Colton  had  already  sought  this  gentleman's  advice.  She 
obediently  told  Mr.  Crocker  she  would  be  guided  by  Mr. 
Wilson. 

Mr.  Crocker's  manner  on  this  visit  was  so  disagreeable 
and  the  widow  was  now  so  thoroughly  alarmed  that  when 
he  sent  word  of  his  next  call,  she  thought  it  well  to  have 
some  women  friends  about  her,  and  thus  avoided  the  dis- 
cussion of  business.  Mr.  Crocker  did  not  come  again,  and 
she  never  spoke  with  him  thereafter. 

Mr.  Wilson  was  now  presumably  investigating  General 
Colton's  affairs.  After  a  time,  he  informed  Mrs,  Colton 
that  the  situation  was  far  worse  than  Mr.  Crocker  had 
pictured  it.  General  Colton  was  not  only  heavily  in  debt  to 
the  companies  he  represented,  but  his  associates  charged 
him  with  repeated  acts  of  embezzlement.  They  had  told 
Wilson  (he  said)  that  all  the  securities  in  the  estate  would 
not  suffice  to  pay  the  General's  debts ;  that  they  held  enough 
claims  to  take  from  Mrs.  Colton10  everything  she  had,  in- 
cluding her  home ;  and  they  threatened,  in  a  manner  "stern 
and  severe  and  determined  and  implacable,"  that  unless  she 
made  a  settlement  and  surrendered  her  stocks  and  bonds 
they  would  make  public  her  husband's  criminal  acts  and 
blacken  his  name  and  memory. 

Mr.  Wilson  was  good  enough  to  say  that  he  did  not  be- 
lieve these  charges,  but  the  railroad  company  had  all  the 


9  Colton  versus  Stanford  et  al.,  testimony,  p.  6626. 

10  Colton  versus  Stanford  et  al.,  testimony,  p.    2812. 


202  STORIES    OF    THE    GREAT    RAILROADS 

books  and  records  and,  therefore,  to  prove  General  Colton's 
innocence  would  be  impossible.11  Hence  the  best  plan  was 
to  make  terms  with  the  associates.  Mrs.  Colton  was  greatly 
distressed. 

Her  misery  was  somewhat  lightened  when  Mr.  Wilson 
suggested  that  she  employ  a  mediator,  who,  because  of  his 
ability  and  experience  was  likely  to  secure  some  concession. 
The  helping  hand  thus  in  her  dark  hours  extended  to  the 
widow  proved  to  be  the  hand  of  Mr.  Lloyd  Tevis,  who,  Mr. 
Wilson  said,  would  be  just  the  man.  Mr.  Tevis  is  not  un- 
known in  these  annals,  having  been  the  originator  of  the  in- 
genious plan  whereby  the  Big  Four  got  possession  of  Wells 
Fargo  &  Co.,12 — of  which  branch  of  the  Big  Four's  activities 
he  was  now  the  president. 

Mr.  Tevis  made  what  he  called  an  investigation  and  re- 
ported (according  to  Mrs.  Colton)  that  General  Colton's 
debt  was  of  great  magnitude  and  the  Western  Development 
Company  was  insolvent,  but  Messrs.  Stanford,  Huntington, 
and  Crocker  had  been  induced  to  make  a  concession  to  the 
widow  of  their  old  friend.  She  must  deliver  to  them  all 
the  securities  that  were  in  controversy,  but  200  of  the 
Southern  Pacific  bonds  might  be  deposited  with  Wells 
Fargo  &  Co.,  and  from  these  she  might  for  ten  years  draw 
the  interest. 

In  other  words,  they  granted  her  a  pension  for  ten  years. 

Of  the  rest  of  the  fortune  they  made  a  thorough  job. 
They  even  insisted  that  50  shares  of  Southern  Pacific  that 
General  Colton  had  given  to  his  daughter  as  a  wedding 
present  should  be  returned  to  them13  and  that  Mrs.  Colton 
should  surrender  uncut  interest  coupons  amounting  to 
$6,000. 


11  Ibid.,  pp.  2523-7. 

"Pacific  Railroad  Commission  Report,  p.  3116. 

"Colton  versus  Stanford  et  al.,  testimony,  p.  2820. 


MRS.   COLTON   LEARNS  ABOUT  PHILANTHROPY  203 

The  two  men  in  whom  she  had  most  confidence,  Wilson 
and  Tevis,  having  thus  assured  her  that  no  other  way  could 
be  found  from  the  sorry  situation,  she  was  almost  per- 
suaded to  surrender.  On  the  morning  of  August  27,  1879, 
she  still  hesitating,  word  was  sent  to  her  that  Mr.  Hunting- 
ton  was  about  to  return  to  New  York,  that  he  would  leave 
that  afternoon  at  3  o'clock,14  and  unless  she  signed  the  set- 
tlement before  that  time  the  Big  Four  would  make  no  terms 
with  her.  Thus  menaced,  she  brought  herself  to  sign  an 
instrument  by  which  she  accepted  the  terms  demanded,  and 
surrendered  all  her  securities.  The  200  Southern  Pacific 
bonds  were  delivered  to  Wells  Fargo  &  Co.,  who  refused 
to  give  her  any  receipt  for  them.  She  also  executed  a  re- 
lease for  $304,060.33  which  the  Western  Development  Com- 
pany had  owed  to  her  husband. 

On  their  part  the  Big  Four  canceled  the  note  for  $1,000,- 
000  held  by  them  against  General  Colton,  and  agreed  to 
keep  secret  the  charges  of  embezzlement. 

Mrs.  Colton  knew  very  little  about  business,  but  she  was 
intelligent,  and  she  felt  intuitively  that  there  had  been 
fraud15  in  these  transactions  although  she  knew  not  wherein 
it  lay.  One  day,  some  months  after  she  had  been  impover- 
ished in  this  masterly  fashion,  she  was  reading  a  newspaper 

"As  a  matter  of  fact,  Mr.  Huntington  did  not  leave  San  Fran- 
cisco that  afternoon  nor  until  September  8th,  twelve  days  later. 

18  QUESTION  :  You  signed  this  paper  and  yet  you  say  you  re- 
belled against  it? 

ANSWER:     Because  I  saw  no  justice  in  it. 

Q.    What  was  the  injustice? 

A.    Robbery. 

Q.    A  robbery?    How  was  it  robbery? 

A.  It  simply  had  arrived  at  the  point  that  it  was  my  money 
or  my  life. 

Q.    Isn't  that  a  rather  strong  way  of  putting  it? 

A.  I  think  not.  I  was  in  the  condition  of  a  man  attacked  by 
a  highwayman  upon  the  roadside. 

Colton  versus  Stanford  et  al.,  cross  examination  of  Mrs.  Ellen 
M.  Colton,  to  be  found  in  the  record,  p.  2816. 


204  STORIES    OF    THE    GREAT    RAILROADS 

and  her  eyes  fell  upon  an  inventory  of  the  estate  of  Mark 
Hopkins,  recently  deceased.  She  noticed  in  the  list  many 
securities  of  the  kind  she  had  surrendered,  and  that  the 
value  of  these  as  given  in  the  list  was  very  much  greater 
than  the  prices  at  which  the  same  securities  had  been  esti- 
mated in  her  enforced  settlement. 

This  set  her  to  thinking  and  the  more  she  reviewed  her 
experience,  the  clearer  grew  her  conviction  that  she  had 
been  wronged.  She  abandoned  Mr.  Wilson  as  her  coun- 
selor and  sought  other  advice.  Her  new  attorney,  Mr.  G. 
Frank  Smith,  set  on  foot  an  investigation  and  obtained 
therefrom  results  that  greatly  astonished  him. 

For  example,  the  schedule  of  the  insolvent  Western  De- 
velopment Company  that  Wilson  said  he  obtained  from  the 
Big  Four  or  their  agents  asserted  an  indebtedness  by  the 
company  of  $11,910,030.44  as  follows:18 

To  Charles  Crocker  .  ..$2,219,541.73 

To  Leland  Stanford   1.763,734.85 

To  Mark  Hopkins 4,087,692.10 

To  C   P.  Huntington 3,519,701.43 

To  D.  D.  Colton   319,360.33 

This  and  no  more.  No  mention  was  made  of  the  fact 
that  these  five  men  were  the  sole  owners  of  the  company; 
that  not  one  of  them  had  ever  paid  in  one  cent  for  his 
stock;  that  they  then  owed  the  company  $5,000,000,  nor 
that  the  company's  alleged  indebtedness  represented  only 
the  securities  and  moneys  that  had  been  advanced  in  their 
names  from  the  Central  Pacific  and  other  funds  for  its  devi- 
ous and  crooked  operations,  and  for  which  they  knew  they 
would  shortly  be  repaid  about  five-fold.17 

"Colton  versus  Stanford  et  al.,  defendants'  exhibit  E. 

"The  exact  nature  of  these  operations  has  been  sufficiently 
described  in  a  foregoing  chapter,  but  I  may  remind  the  reader  here 
that,  according  to  the  testimony  before  the  Pacific  Railroad  Com- 
mission, the  Southern  Pacific  was  built  put  of  the  diverted  earnings 
and  sinking  fund  of  the  Central  Pacific.  The  Southern  Pacific 
was  on  through  business  a  parallel  line  that  had  the  same  owners 


MRS.   COLTON  LEARNS  ABOUT  PHILANTHROPY  205 

Mr.  Smith  was  further  informed  that  in  the  list  of  as- 
sets in  this  amazing  schedule  were  most  glaring  omissions. 
Thus  no  mention  whatever  was  made  of  these  items  that 
should  have  been  included  :18 

$462,000.00  due  from  the  Northern  Railroad  and  subsequently  paid 

in  bonds. 
748,000.00  due  from  the  Northern  Railroad  in  other  items  and  a 

little  later  paid  in  bonds. 
7,340.32  due  from  California  Pacific  stock. 
92,640.00  due  from  the  San  Pablo  &  Tulare  Railroad. 
3,753.00  from    the    Pacific    Improvement    Company. 
5,766.15  interest  due  on  Northern  Railroad  bonds. 
36,437.03  interest  due  on  San  Pablo  &  Tulare  bonds. 
4,986.07   interest   due   on    San   Francisco,    Oakland   &    Alameda 
bonds. 

The  schedule  also  set  down  as  a  worthless  asset  $832,800 
due  from  the  Los  Angeles  &  San  Diego  Railroad ;  Mr. 
Smith  was  assured  that  within  a  year  this  debt  was  paid  in 
good  bonds  and  stocks.  Another  debt  of  $45,640.53  car- 
ried in  the  schedule  as  a  worthless  asset  had  already  been 
paid  in  gold.  The  Los  Angeles  &  Independence  Railroad 
was  put  down  as  worth  $100,000  when  $300,000  appeared 
to  have  been  paid  for  it,  and  since  its  purchase  it  had  re- 
turned $114,318  in  dividends.  The  Colorado  Steam  Navi- 


and  owed  the  government  nothing.  The  money  that  built  it  should 
have  gone  to  pay  the  Central  Pacific's  debt  to  the  national  treasury. 
Curious  collateral  testimony  about  all  this  exists  in  the  Colton 
letters  of  Mr.  Huntington.  In  the  letter  of  May  8,  1875,  Mr.  Hunt- 
ingtpn  says :  "All  the  material  I  buy  here  is  paid  for  by  the  Central 
Pacific.  Some  of  it,  like  the  six  coaches  sent,  I  know  are  for  the 
S.  P.  (Southern  Pacific),  but  just  whether  they  are  to  be  charged 
to  the  S.  P.  or  the  Western  Development  Co.  I  do  not  know." 
In  other  letters  he  complains  of  the  enormous  floating  debt  of  the 
Central  Pacific  that  this  system  was  piling  up.  "Our  liabilities 
(Central  Pacific)  are  getting  very  large  here  for  a  company  with 
such  large  receipts  and  with  no  apparent  outlay  except  interest  on 
bonded  debt  and  operating  expenses."  In  his  letter  of  March  24, 
1877,  he  figures  the  profits  of  the  Central  Pacific  at  $750,000  a 
month.  These  were  being  used  to  pay  for  the  building  of  the 
Southern  Pacific,  rendering  both  stock  and  bonds  of  that  road 
"velvet"  for  the  fortunate  projectors. 

"These  and  many  others  are  to  be  found  in  the  testimony,  pp. 
2623-31. 


206  STORIES    OF    THE    GREAT    RAILROADS 

gation  Company  was  entered  as  an  asset  of  $150,000,  where- 
as in  the  last  three  years  previous  to  the  making  of  the 
schedule  this  company  had  paid  $110,000  in  dividends.  On 
the  other  hand,  in  the  liabilities,  an  item  of  indebtedness 
entered  at  $298,208.35,  should  have  been  $269,415.73,  and 
there  were  other  apparent  inaccuracies  that  might  be 
thought  very  surprising  in  a  statement  emanating  from  a 
business  enterprise  of  such  magnitude  and  standing. 

According  to  the  information  gathered  by  Mr.  Smith, 
many  other  goodly  items  were  missing  from  the  assets,  such 
as  Iowa  county  bonds,  Sioux  City  &  Pacific  bonds  and  the 
like,  and  no  mention  was  made  of  such  possessions  as  the 
contract  to  extend  the  San  Pablo  &  Tulare  road  forty-six 
miles  at  $25,000  a  mile  in  bonds  and  $40,000  a  mile  in  stock 
(actual  cost  of  construction  less  than  $20,000  a  mile),19 
nor  of  other  contracts  and  items. 

It  appeared  further  than  none  of  the  other  beneficiaries  of 
the  Western  Development  Company's  dividend  had  re- 
turned any  of  his  stocks  and  bonds,  but  on  the  contrary, 
twenty-two  days  after  General  Colton's  death,  these  men 
had  wound  up  the  Western  Development  Company  (which 
they  controlled)  and  organized  in  its  place  the  Pacific  Im- 
provement Company,  of  which  they  alone  were  owners. 
They  then  transferred  to  the  new  company  all  of  the  West- 
ern Development  Company's  possessions  and  contracts,  by 
which  device  they  froze  out  all  the  Colton  interests.  From 
the  operations  of  the  Pacific  Improvement  Company  they 
derived  by  the  end  of  1882  $20,000,000,  which  they  had 
divided  among  themselves,  although  if  General  Colton  had 
lived  he  certainly  would  have  had  a  share  of  it. 

Furthermore,  the  investigation  seemed  to  show  that  the 


"Most  of  this  amazing  revelation  of  the  inside  history  of  the 
concern  seems  to  have  been  obtained  from  a  discharged  employee 
As  it  was  never  seriously  controverted  I  am  obliged  to  suppose  it 
to  be  correct. 


MRS.   COLTON   LEARNS  ABOUT  PHILANTHROPY  207 

charge  of  "embezzlement"  was  absurd  and  the  claim  of  debt 
quite  as  tenuous. 

The  total  debt  alleged  against  Colton  was  made  up  of 
$666,000,  his  share  of  the  "insolvent"  Western  Development 
Company  debt;  $160,000  he  had  "embezzled";  $125,000 
due  to  the  companies  he  had  managed;  and  the  $1,000,000 
note  secured  by  collateral. 

But  it  appeared  that  there  had  been  paid  on  the  $1,000,000 
note  the  sum  of  $250,000,  so  that  the  debt  was  $750,000 
instead  of  $1,000,000.  The  embezzlement  charge  when 
sifted  down  had  no  more  excuse  than  this,  that  Colton  had 
drawn  from  the  company  money  without  returning  vouch- 
ers.20 But  it  appeared  that  all  of  the  partners  had  done 
this ;  indeed,  the  whole  concern,  when  the  light  was  thrown 
upon  it,  looked  like  a  riot  of  perquisites,  "melons,"  "bene- 
fits," and  other  good  things  of  the  kind.  Mark  Hopkins 
had  drawn  from  the  Southern  Pacific  on  September  30, 
1871,  $151,560.59,  and  no  accounting  was  made  of  this  sum 
until  1880,  two  years  after  his  death.  Mr.  Huntington 
when  in  New  York  drew  from  the  Western  Development 
apparently  at  his  will  and  never  returned  any  voucher.  In 
three  years  he  had  drawn  $400,000.  Governor  Stanford 
took  out  $45,638.84  without  explanation.  Mr.  Crocker, 
without  warrant  or  apparent  authority,  took  from  the 
treasury  500  Southern  Pacific  bonds  to  buy  the  Oakland 
water  front.  It  seemed  a  fair  contention  that  if  Colton 
was  an  embezzler,  these  men  were  embezzlers,  no  less.21 

As  for  Colton's  share  of  the  alleged  indebtedness  of  the 
alleged  insolvent  Western  Development  Company,  it  ap- 

20  There  was  an  allegation  that  he  had  deposited  for  the  company 
$228,618.47  in  silver  and  then  obtained  credit  for  his  own  benefit 
on  a  pretense  that  the  deposit  was  in  gold.  This  was  never  estab- 
lished, but  even  if  it  were  true  it  was  not  significant,  because  such 
seemed  to  be  the  custom.  The  Central  Pacific  had  done  the  same 
thing  with  $2,000,000  of  silver.  Colton  versus  Stanford  et  al.,  tes- 
timony, p.  2741. 

"Colton  versus  Stanford  et  al.,  testimony,  pp.  2638-39. 


208  STORIES    OF    THE    GREAT    RAILROADS 

peared  from  the  information  that  there  was  no  true  in- 
debtedness and  the  company  was  not  insolvent  at  all  but  fat 
with  rich  assets  that  never  had  been  divided.22  From  its 
organization  to  Colton's  death  it  had  shared  among  its  stock- 
holders $21,000,000.  At  Colton's  death  it  had  on  hand,  as 
the  investigation  revealed,  $22,810,500.43  subject  to  claims, 
real  and  imaginary,  of  $11,316,497.22. 

In  payment  of  these  debts  that  did  not  exist,  there  seemed 
to  have  been  taken  from  Mrs.  Colton  securities  at  much  less 
than  their  real  value.  Her  Southern  Pacific  bonds,  for  in- 
stance, were  scheduled  in  her  settlement  at  60,  while  in 
March  of  the  same  year  they  had  sold  at  100,  and  at  the 
time  of  the  settlement  were  traded  in  by  the  Big  Four  at  94. 
The  Rocky  Mountain  stock  they  appraised  from  her  at 
$16.24  a  share,  must  have  been  worth  about  par.23  And 
so  on. 

Upon  the  discovery  of  these  and  many  other  allegations 
of  a  like  nature,  Mr.  Smith  advised  Mrs.  Colton  to  bring 
suit  at  once  for  the  annulling  of  her  contract  and  the  return 
of  her  securities.  Mrs.  Colton  still  clung  to  a  belief  in  the 
sincerity  of  one  of  the  men  that  had  professed  so  much  af- 
fection for  her  husband.  With  the  large  and  unctuous 
sentiments  of  Leland  Stanford  she  was  unable  to  reconcile 
the  idea  of  despoiling  the  defenseless,  and  she  wished  an 
appeal  to  be  made  to  his  sense  of  justice. 

Mr.  Smith  had  other  views.  For  some  time  he  had  been 
attentively  considering  the  sense  of  justice  possessed  by 
these  men  and  had  acquired  of  it  a  very  low  estimate.  He 
told  Mrs.  Colton  that  an  appeal  to  any  of  them  was  quite 
useless.  Nevertheless,  she  insisted,  and  on  March  11,  1882, 

"It  may  be  interesting  to  note  that  as  brought  out  in  the  trial 
the  "Nob  Hill"  palaces  of  Stanford,  Hopkins,  and  Crocker  were 
built  out  of  the  Western  Development  Company.  Colton  versus 
Stanford  et  al.,  testimony,  p.  8877. 

21  Pacific  Railroad  Commission  Report,  testimony  of  Leland  Stan- 
ford, p.  2938. 


MRS.   COLTON   LEARNS  ABOUT   PHILANTHROPY  209 

he  wrote  to  Leland  Stanford  outlining  Mrs.  Colton's  story, 
her  confidence  in  the  goodness  and  justice  of  her  old  friend, 
and  her  plea  that  she  be  not  utterly  plundered.  Mr.  Smith 
closed  with  this  comment: 

"Knowing  how  repugnant  uncontested  settlements  are  to  your 
associates,  I  have  acted  in  the  premises  contrary  to  my  own  belief 
of  any  possible  advantage  that  can  accrue  to  her  from  this  or  any 
other  amicable  overtures  on  her  part."  24 

To  this  letter  no  answer  was  returned.  The  fact  did  not 
astonish  Mr.  Smith  and,  one  may  think,  need  not  have 
astonished  Mrs.  Colton.  Later  she  recalled  an  incident  that, 
upon  a  more  suspicious  nature,  might  have  acted  to  pre- 
vent the  writing  of  such  a  letter.  General  Colton's  office  had 
been  in  the  railroad  company's  building,  and  in  a  safe  in  that 
office  were  still  kept  all  the  securities  belonging  to  the  estate. 
According  to  her  subsequent  testimony,25  Governor  Stan- 
ford came  into  this  office  one  day  and  found  there  Mr. 
Green,  who  had  been  Colton's  secretary.  The  safe  was 
open. 

Governor  Stanford  remarked  to  Mr.  Green  that  he  was 
very  anxious  about  the  security  of  the  property  in  that  safe. 
He  said  that  the  art  of  safe-blowing  had  been  so  developed 
that  a  safe-blower  could  open  such  a  safe  even  in  a  building 
where  there  were  watchmen.  He  thought  General  Colton's 
property  should  be  removed  to  a  safer  place,  and  suggested 
that  such  a  place  would  be  the  vault  of  the  railroad  com- 
pany. Mr.  Green  reported  this  conversation  to  the  Widow 
Colton.  She  testified  that  she  acted  at  once  upon  Governor 
Stanford's  suggestion;  but  the  safer  place  to  which  she 
transferred  the  property  was  not  the  railroad  company's 
vault,  but  a  box  in  a  safety  deposit  company's  care. 

On  May  21,  1882,  Mrs.  Colton's  suit  was  filed  in  San 

24  Colton  versus  Stanford  et  al.,  testimony,  pp.  2607-8. 
26 1 bid.,  p.  2905. 


210  STORIES    OF    THE    GREAT    RAILROADS 

Francisco.  The  answer  of  the  defendants26  was  a  general 
denial  of  the  bill  of  complaint,  a  definite  assertion  of  Col- 
ton's  embezzlements  and  defalcations,  an  astounding  reit- 
eration of  the  insolvency  of  the  Western  Development  Com- 
pany, and  a  plea  that  the  statements  made  to  Mrs.  Colton 
were  made  in  good  faith  and  on  credible  information. 

The  defendants  demurred  to  some  points  in  the  plaintiff's 
bill,  and  Judge  Hunt  promptly  overruled  the  demurrer. 
Whereupon  counsel  for  Stanford  et  al.  secured  the  removal 
of  the  case  to  the  Sonoma  County  Court  at  Santa  Rosa.  It 
came  to  trial  in  November,  1883,  before  Judge  Jackson  Tem- 
ple, a  jury  being  waived. 

Judge  Temple  was  afterwards  a  member  of  the  California 
Supreme  Court. 

After  the  usual  manner  of  things  disagreeable  to  the  rail- 
road company,  the  fifteen  volumes  of  testimony  taken  in  the 
case  have  mysteriously  vanished  from  the  court  records  at 
Santa  Rosa,  but  I  succeeded  in  finding  copies  at  Sacramento 
and  can  unreservedly  commend  their  perusal  to  anyone  that 
cares  to  know  the  true  manner  in  which  the  railroads  of  the 
United  States  have  been  conducted,  or  how.  far  (under  pres- 
ent conditions)  men  will  go  for  the  sake  of  money  and  the 
power  that  abides  in  money.  In  these  respects  I  knoiv  of  no 

_ 26  They  did  not  mention  their  real  defense,  which,  though  inad- 
missible as  a  plea  in  a  court  of  justice,  was  not  without  merit,  at 
least  from  their  point  of  view.  It  was  this :  Messrs.  Stanford, 
Huntington,  Hopkins,  and  Crocker  had  desired  to  avail  themselves 
of  General  Colton's  superior  cunning  and  cleverness.  The  secur- 
ities they  bestowed  upon  him  were  merely  the  wages  for  his  ser- 
vices. When  they  were  deprived  of  his  services  they  did  not 
purpose  to  continue  the  wages.  For  the  most  part  the  securities 
represented  no  investment.  They  were  merely  manufactured  by 
the  Big  Four  at  their  convenience  and  for  their  profit.  All  were 
liens  upon  the  enterprise  and  carried  substantial  interest,  and  the 
Big  Four  could  see  no  reason  why  property  manufactured  in  this 
way  should  be  enjoyed  by  General  Colton's  estate  after  they  had 
ceased  to  derive  anything  from  General  Colton's  wits. 

The  substance  of  this  argument  was  frankly  stated  by  Mr. 
Crocker  to  Mr.  Wilson  and  will  be  found  in  the  testimony,  Ellen 
M.  Colton  versus  Leland  Stanford  et  al.,  at  p.  2841. 


MRS.  COLTON  LEARNS  ABOUT  PHILANTHROPY  211 

other  volumes  of  equally  impressive  instruction.  Whoever 
reads  them  will  face  the  primitive  human  passions  made  so 
naked  and  real  before  him  tliat  he  will  seem  to  himself  to 
have  dipped  backward  into  the  jungle. 

On  October  8,  1885,  Judge  Temple  filed  his  opinion.  It 
cleared  General  Colton's  name  from  the  absurd  embezzlement 
charge,  but  held  on  almost  all  other  points  for  the  defend- 
ants, in  some  instances  adopting  the  very  language  of  their 
answer.  The  chief  ground  of  the  decision  seemed  to  be 
that  Mrs.  Colton's  contract  was  sound  in  law,  made  by  her 
in  full  knowledge  of  its  terms  and  basis,  and  contracts 
must  be  upheld  (Miles  versus  McDermott,  31  Cal.  273; 
Woods  versus  Carpenter,  11  Otto  143;  Le  Roi  versus  Mulli- 
ken  and  Moore  versus  Moore,  56  Cal.  90,  if  I  have  the 
citations  right).  Also  that  she  was  not  so  much  prostrated 
by  her  husband's  death  that  she  was  unable  to  exercise  per- 
fectly all  her  mental  faculties,  that  she  had  very  able  coun- 
sel, and  by  them  she  was  fully  informed  as  to  the  situation 
and  her  rights. 

In  the  subsequently  filed  "Findings  of  Fact  and  Conclu- 
sions of  Law,"  Judge  Temple  considered  seventy-seven 
points,  and  on  seventy-two  of  them  found  for  the  defend- 
ants. 

The  case  was  appealed  December  15,  1886,  and  in  Janu- 
ary, 1890,  the  Supreme  Court  handed  down  a  decision  sus- 
taining Judge  Temple. 

For  Mrs.  Colton,  therefore,  the  net  result  of  her  suit  was 
a  heavy  bill  of  costs  that  she  must  pay. 

Mr.  Huntington  had  won.  He  had  defeated  and  crushed 
the  widow  of  his  old  friend,  and  the  securities  that  were  the 
prizes  of  the  long  conflict  rested  in  the  coffers  of  the  Four  of 
Sacramento.  But  Mr.  Huntington  had  his  own  costs  to  pay. 
For  it  was  in  this  case  that  the  Colton  letters,  printed  in  a 
previous  chapter,  were  produced,  and  the  real  nature  of  his 
Washington  operations  proved  to  the  world.  From  this  time 
on  those  letters  were  hung  about  his  neck. 


CHAPTER  IX. 

SPEAKING  OF  WIDOWS  AND  ORPHANS. 

For  many  years  now  this  colossal  institution  had  been  the 
virtual  ruler  of  the  state,  setting  up  this  officer  and  pulling 
down  that,  filling  places  in  the  government  with  obedient 
henchmen,  controlling  the  parties  and  selecting  their  candi- 
dates, holding  avenues  to  distinction  and  even  to  success, 
choosing  judges  and  commissioners,  nominating  jurors,  and 
with  equal  facility  influencing  legislators  and  witnesses.1 
Men  or  even  communities  that  conspicuously  opposed  the 
machine  were  made  to  suffer.  As  the  railroad  built  exten- 
sions of  its  lines  it  levied  tribute  upon  towns  thus  brought 
within  its  reach  and  sometimes  inflicted  very  serious  injury 
upon  those  that  refused  to  make  grants  of  land  or  of  money. 

For  some  such  offense  the  city  of  Stockton  was  a  long 
time  on  the  company's  black  list  and  hindered  in  its  growth. 
Silveyville  was  practically  annihilated,  the  new  town  of 
Dixon  being  built,  in  a  spirit  of  revenge,  three  and  a  half 
miles  away.  Bakersfield  having  once  incurred  the  com- 
pany's displeasure,  the  town  of  Kern,  three  miles  off,  was 
developed  to  crush  Bakersfield. 

It  would  be  easy  to  multiply  the  instances  that  to  all  ex- 
cept Calif ornians  must  seem  improbable  fiction.  The  city 
of  Oakland,  now  one  of  the  fairest  and  most  prosperous  in 
California,  was  once  obliged  to  fight  for  its  mere  existence 
against  the  railroad  company  as  against  a  public  enemy.  Some 

1  Allegations  of  very  flagrant  witness-bribing  were  made  in  San 
Francisco,  April,  1896,  in  the  case  of  Louis  Schmidt,  who  confessed 
he  had  been  bribed  by  agents  of  the  railroad  to  testify  falsely  in 
the  damage  suit  of  Mary  Quill. 


SPEAKING   OF   WIDOWS   AND   ORPHANS  213 

very  extraordinary  scenes  were  witnessed  in  that  contest.  A 
visitor  would  have  thought  a  civil  war  was  raging.  The  com- 
pany fenced  off  public  streets  by  night  and  the  citizens  tore 
down  the  fences  by  day ;  the  company  drove  piles  across  the 
water  front  slips  and  the  citizens  fought  to  remove  them; 
the  company  tried  to  strangle  the  town  by  strangling  its  ferry 
service  and  the  citizens  underwent  strange  privations  to 
maintain  a  semblance  of  their  rights. 

The  power  and  supremacy  of  this  company  were  not  lim- 
ited to  state  nor  to  municipal  affairs.  Merchants  or  ship- 
pers that  supported  any  plan  to  secure  relief  through  com- 
petition found  their  shipments  delayed  and  their  rivals 
helped  with  rebates.  Lawyers  that  unduly  pressed  obnox- 
ious suits  found  their  practice  vanishing.  Some  men  were 
ruined  for  their  opposition ;  some  were  made  rich  for  their 
assistance.  No  one  need  wonder  that  to  oppose  the  rail- 
road came  to  be  regarded  as  fraught  with  greater  danger 
than  the  average  man  could  afford  to  face. 

This  brings  me  to  the  incident  that  best  illustrates  the 
truly  autocratic  power  that  these  men  grasped  and  the  wan- 
ton spirit  in  which  they  used  it. 

One  of  the  triumphs  of  Mr.  Huntington  s  method  of  "ex- 
plaining" things  to  members  of  Congress  (at  a  cost  of  mil- 
lions of  dollars  added  to  the  company's  capitalization)  was 
a  bill  passed  in  1866  granting  to  the  railroad  company  in 
alternate  sections  12,800  acres  of  public  land  for  every  mile 
it  should  build  from  San  Francisco  to  a  point  at  the  south- 
eastern corner  of  the  state ;  or  half  the  land  in  a  strip  forty 
miles  wide  along  its  right  of  way.  The  line  was  laid  out 
and  the  railroad's  lands  designated.  Subsequently  it  some- 
what changed  its  route  and  therefore  the  land  to  which  it 
was  entitled  under  the  act. 

At  that  time,  and  for  years  afterwards,  only  a  small  part 
of  the  line  had  been  constructed  and  there  grew  up  a  ques- 
tion whether  the  railroad  were  really  entitled  to  certain  parts 


214         STORIES  OF  THE  GREAT  RAILROADS 

of  the  land  it  claimed  in  Fresno,  Tulare  and  some  other 
counties.  The  rulings2  of  four  Secretaries  of  the  Interior, 
an  Attorney-General,  and  a  Commissioner  of  the  Federal 
Land  Office,  supported  the  view  that  the  railroad  company 
had  no  right  to  this  property,  but  the  company  continued  to 
claim  the  land  and  to  sell  it. 

Meantime  many  settlers  had  come  into  the  Fresno-Tulare 
region.3  Some  had  secured  their  titles  from  the  government 
before  the  railroad's  route  was  changed.  These  now  found 
their  farms  to  embrace  sections  claimed  by  the  company. 
Many  others,  coming  after  the  final  determination  of  the  line, 
had  taken  railroad  lands  at  the  company's  invitation  and 
under  terms  set  forth  by  the  company's  circulars.  These 
speedily  had  troubles  of  another  sort. 

The  company's  circulars,  signed  by  its  officers,  setting 
forth  the  attractions  of  the  Fresno-Tulare  region  and  offer- 
ing unusual  inducements  to  settlers,  had  been  widely  scat- 
tered over  the  Middle  West.  They  dealt  in  an  apparent 
spirit  of  frankness  and  truth,  describing  the  lands  as  of  an 
excellent  quality  but  dry — a  fault  easily  remedied  by  irriga- 
tion, when  the  soil  would  be  found  to  be  of  surpassing  fer- 
tility. Terms  would  be  remarkably  easy.  Here  are  para- 
graphs from  one  of  the  circulars. 

On  page  6 — The  company  invites  settlers  to  go  upon  their  lands 
before  patents  are  issued  or  the  road  is  completed,  and  intends  in 
such  cases  to  sell  to  them  in  preference  to  any  other  applicant  and 
at  a  price  based  upon  the  value  of  the  land  without  the  improve- 
ments put  upon  them  by  the  settlers. 


3  The  dates  of  these  decisions  were  as  follows : 
Secretary  Browning,  July  14,  1868. 
Secretary  Cox,  November  2,  and  November  11,  1869. 
Secretary  Delano,  May  9,  1873,  and  February  26,  1874. 
Secretary  Schurz,  August  2,  1878. 
Attorney-General  Devens,  July  16,  1878. 
Commissioner  Drummond,  January  28,   1874. 

"About  240  miles  southeast  of  San  Francisco. 


SPEAKING   OF   WIDOWS    AND   ORPHANS  215 

On  page  7 — If  the  settlers  desire  to  buy,  the  company  gives  them 
the  first  privilege  of  purchase  at  a  fixed  price,  which  in  every  case 
shall  only  be  the  value  of  the  land  without  regard  to  improvements. 

On  page  o — The  lands  are  not  uniform  in  price  but  are  offered 
at  various  figures  from  $2.50  upward  per  acre ;  usually  land  covered 
with  tall  timber  is  held  at  $5  per  acre  and  that  with  pine  at  $10. 
Most  is  for  sale  at  $2.50  to  $5. 

In  ascertaining  the  value,  any  improvement  that  a  settler  or 
other  persons  may  have  on  the  lands  will  not  be  taken  into  consid- 
eration;  neither  will  the  price  be  increased  in  consequence  thereof. 
Settlers  are  thus  assured  that  in  addition  to  being  accorded  the 
first  privilege  of  purchase  they  will  be  protected  in  their  improve- 
ments.* 

In  response  to  the  liberal  offers  many  farmers  came  from 
Missouri  and  Illinois  and  took  up  land.  They  found  the 
country  a  sandy  waste  and  worthless  until,  by  uniting  their 
efforts  and  capital,  they  had  constructed  an  irrigation  sys- 
tem, whereupon  the  soil  became  exceedingly  fertile.6 

Meanwhile,  although  they  made  repeated  applications, 
they  were  unable  to  get  their  titles  from  the  railroad  com- 
pany. The  reason  why  they  could  not  get  their  titles  was 
because  the  company  had  not  taken  out  its  patents,  and  the 
reason  why  it  had  not  taken  out  its  patents  was  because  so 
long  as  it  had  no  patents  on  its  lands  it  could  not  be  taxed 
for  them.  This  was  the  simple  little  plan  it  uniformly 
pursued  and  thereby  deprived  the  counties  and  the  State  of 
California  of  millions  of  dollars  in  taxes.8 

*  These  circulars  were  subsequently  confirmed  by  letters  from 
agents  of  the  railroad  company  to  individual  settlers. 

B  They  constructed  two  inadequate  ditches  before  they  got  one 
that  carried  enough  water.  It  was  twenty  miles  long  and  was  dug 
chiefly  by  the  voluntary  labor  of  the  settlers,  most  of  whom  were 
extremely  poor  and  lived  in  destitution  until  the  water  began  to 
flow  around  their  lands.  Many  of  the  settlers,  while  they  worked 
on  the  ditch,  lived  upon  corn  meal  ground  in  hand  coffee  mills 
and  upon  fish  that  they  caught.  None  of  them  understood  irrigation 
and  they  were  obliged  to  learn  by  experience.  There  is  extant 
a  very  pathetic  letter  from  a  woman  of  education  and  refinement, 
Mrs.  Mary  E.  Chambers,  a  sister  of  one  of  these  men,  giving  a 
vivid  account  of  the  hardships  the  settlers  endured  in  these  years. 

"For  explicit  testimony  on  this  point,  see  Pacific  Railroad  Com- 
mission Report,  p.  146. 


216  STORIES    OF    THE    GREAT    RAILROADS 

But  in  1877  the  company  began  to  take  out  its  patents,  and 
soon  afterwards  to  demand  payment  of  the  settlers. 

Then  the  settlers  learned  to  their  amazement  that  the  land 
was  not  to  be  paid  for  at  $2.50  an  acre  but  at  from  $25  to 
$40  an  acre,  and  that  all  the  improvements  they  had  made 
were  counted  in  the  price.  Even  the  irrigation  ditch  that 
they  had  constructed  at  their  own  expense  and  with  their 
own  labor  became  a  great  factor  in  the  increase.  The  land 
was  not  to  be  offered  to  them  first ;  it  was  to  be  thrown  on 
the  market  for  any  purchaser. 

When  the  settlers  found  that  the  company  really  intended 
thus  to  violate  its  agreement  they  protested,  showing  the  cir- 
culars and  the  promises  therein.  They  offered  to  pay  the 
company  at  the  stipulated  prices,  but  all  protests,  offers  and 
arguments  were  alike  without  avail;  and,  the  company  pre- 
paring to  press  its  claims,  many  of  the  threatened  farmers 
formed  a  Settlers'  League  to  defend  by  united  action  what 
they  believed  to  be  their  rights.  Four  times  they  had  peti- 
tioned Congress  (without  result,  of  course),  and  now  they 
resorted  to  the  law.  A  test  case  was  tried  in  the  Federal 
Court  and  on  December  15,  1879,  Judge  Lorenzo  Sawyer 
(who  afterwards  held  Leland  Stanford  to  be  immune  from 
disagreeable  questions)  rendered  a  decision  upholding  the 
railroad  company  in  all  its  contentions.  From  this  decision 
the  perplexed  settlers  prepared  to  appeal  to  the  United 
States  Supreme  Court. 

Meantime  the  railroad  company  had  begun  to  sell  the  set- 
tlers' lands  and  four  or  five  men  moved  into  the  region  and 
built  houses  under  the  railroad  company's  warrant.  In 
June,  1879,  a  band  of  men  came  by  night  to  the  place  of 
Perry  C.  Phillips,  a  purchaser  from  the  railroad,  removed 
the  inmates  and  all  the  contents  to  a  place  of  safety,  and 
burned  the  house  to  the  ground.7  After  this  the  company 
found  great  difficulty  in  selling  any  of  the  lands. 

?It  is  denied  that  the  Settlers'  League  had  any  connection  with 
this  affair. 


SPEAKING   OF   WIDOWS   AND   ORPHANS  217 

What  went  on  in  the  minds  of  the  railroad  managers  is 
only  to  be  surmised,  but  from  subsequent  events  the  con- 
clusion seems  reasonable  that  after  so  many  years  of  auto- 
cratic rule  they  were  greatly  nettled  by  this  active  and  so 
far  successful  opposition.  The  settlers  believed  that,  fol- 
lowing the  usual  custom,  both  sides  should  now  halt  to 
await  the  Supreme  Court's  decision.  As  to  this  the  rail- 
road company  had  another  opinion.  Ignoring  the  pending 
litigation,  it  sharked  up  from  the  north  two  hardy  men 
to  whom  it  promised  land  without  charge  if  they  would 
succeed  in  breaking  the  settlers'  position.  One  of  these 
men,  Walter  J.  Crow,  was  reputed  to  be  among  the  best 
rifle  and  revolver  shots  in  the  state,  and  the  settlers  thought 
they  knew  the  purpose  for  which  he  was  employed.  The 
antecedents  of  the  other,  M.  D.  Hartt,  are  not  so  well 
known. 

Hartt  and  Crow  went  into  the  region,  and  soon  after, 
with  other  men  that  had  obtained  land  from  the  rail- 
road, they  exhibited  this  notice,  which  they  said  they  had 
received : 

Tulare  County,  April  24,  1880. 
You  are  hereby  ordered  to  leave  the  country. 

BY  ORDER  OF  THE  LEAGUE. 

The  Settlers*  League  did  not  send  out  these  notices  and 
had  no  knowledge  of  them.  At  the  same  time  reports  were 
sent  abroad  that  bands  of  armed  and  masked  men  were 
riding  up  and  down  the  district  making  threats  and  com- 
mitting outrages,  although  the  residents  were  not  aware 
of  such  matters. 

'Next,  the  railroad  company  went  into  the  Federal  Court, 
secured  writs  of  ejectment,  placed  them  in  the  hands  of 
A.  W.  Poole,  United  States  Marshal  of  the  district,  and 
demanded  that  he  serve  them  at  once,  remove  the  settlers, 
and  put  Hartt  and  Crow  in  possession. 


218  STORIES    OF    THE    GREAT    RAILROADS 

The  marshal,  of  course,  was  obliged  to  comply,  and  on 
Monday,  May  10,  1880,  he  went  to  Hanford,  Tulare  Coun- 
ty,8 the  trading  town  that  had  grown  uo  near  the  settlers' 
lands. 

Major  T.  J.  McQuiddy,  president  and  leader  of  the  Set- 
tlers' League,  upon  which  he  had  always  urged  moderation 
and  patience,  learned  that  night  of  the  marshal's  arrival  and 
understood  well  enough  his  errand.  With  the  secretary  of 
the  league  Major  McQuiddy  drew  up  the  following  ad- 
dress : 

To  the  United  States  Marshal:— 

Sir:  We  understand  that  you  hold  writs  of  ejectment  issued 
against  settlers  of  Tulare  and  Fresno  counties,  for  the  purpose 
of  putting  the  Southern  Pacific  Railroad  Company  in  possession  of 
our  lands,  upon  which  we  entered  in  good  faith  and  have  by  our 
own  patient  industry  transformed  from  a  desert  into  valuable  and 
productive  homes. 

We  are  aware  that  the  United  States  District  Court  has  decided 
that  our  lands  belong  to  said  Railroad  under  patent  issued  by  the 
United  States  Government. 

We  hereby  notify  you  that  we  have  had  no  chance  to  present 
our  equity  in  the  case  nor  shall  we  be  able  to  do  so  as  quickly  as 
our  opponents  can  complete  their  process  for  a  so-called  legal 
ejectment,  and  we  have  therefore  determined  that  we  will  not 
leave  our  homes  unless  forced  to  do  so  by  a  superior  force.  In 
other  words,  it  will  require  an  army  of  1,000  good  soldiers  against 
the  local  force  that  we  can  rally  for  self-defense,  and  we  further 
expect  the  moral  support  of  the  good,  law-abiding  citizens  of  the 
United  States  sufficient  to  resist  all  force  that  can  be  brought  to 
bear  to  perpetuate  such  an  outrage. 

Three  cases  have  been  appealed  to  the  United  States  Supreme 
Court  and  we  are  determined  to  submit  to  no  ejectment  until  said 
cases  are  decided. 

We  present  the  following  facts . 

First— These  lands  were  never  granted  to  the  Southern  Pacific 
Railroid  Company. 

'It  is  now  in  Kings  County. 


SPEAKING    OF    WIDOWS    AND    ORPHANS  219 

Second — We  have  certain  equities  that  must  be  respected  and 
shall  be  respected. 

Third — The  patents  they  hold  to  our  lands  were  acquired  by 
misrepresentation  and  fraud,  and  we,  as  American  citizens,  cannot 
and  will  not  respect  them  without  investigation  by  our  government. 

Fourth — The  Southern  Pacific  Railroad  Company  have  not 
complied  with  their  contract  both  with  our  people  and  with  our 
government,  and  therefore  for  these  several  reasons  we  are  in 
duty  bound  to  ask  you  to  desist. 

BY  AUTHORITY  OF  THE  LEAGUE. 

Early  the  next  morning  before  this  could  be  delivered  to 
him,  the  marshal  hired  a  buggy  and  accompanied  by  W.  H. 
Clark,  the  railroad's  grader  or  appraiser  of  lands,  he  drove 
three  miles  northeast  to  the  nearest  of  the  farms  covered 
by  the  writs  of  ejectment — the  farm  of  W.  B.  Braden,  a 
member  of  the  League. 

In  another  buggy  close  behind  came  Hartt  and  Crow, 
heavily  armed  with  revolvers,  rifles  and  shotguns,  the  shot- 
guns being  loaded  with  small  bullets  or  slugs  instead  of 
shot. 

It  happened  that  on  this  day  the  League  was  having  a 
picnic  some  miles  away;  whether  this  fact  influenced  the 
action  of  the  railroad  company  and  its  traveling  batteries  I 
do  not  know.  Braden  was  at  the  picnic ;  no  one  was  in  the 
little  cottage.  The  marshal  entered,  carried  out  all  the 
household  goods,  piled  them  in  the  road,  and  formally  de- 
clared Hartt  to  be  in  possession  of  the  premises.9 

This  was  about  nine  o'clock  in  the  morning.  The  mar- 
shal and  Clark,  closely  followed  by  Hartt  and  Crow,  drove 
to  the  next  place,  the  farm  of  one  Brewer,  over  the  border 
of  Fresno  County,  and  about  three  and  a  half  miles  from 
Braden's.  They  encountered  on  the  road  a  settler  named 
J.  H.  Storer,  an  old  friend  of  Marshal  Poole's,  and  Poole 

"Four  loaded  cartridges  were  left  on  Braden  s  doorstep,  prob- 
ably as  an  indication  of  what  would  be  the  result  of  any  resistance 
on  his  part 


220  STORIES    OF    THE    GREAT    RAILROADS 

reined  in  for  a  time  while  the  two  talked.  Storer  said  the 
settlers  hoped  for  a  compromise  with  the  railroad  company 
and  he  would  try  to  arrange  one. 

When  they  drove  on,  Clark,  t-he  grader,  reproved  the 
marshal  for  talking  with  Storer  because  Storer  was  the 
partner  of  Brewer,  whom  they  had  come  to  dispossess. 

About  ten  o'clock  they  arrived  at  Brewer's  place.  He  was 
harrowing  in  his  field.  Both  buggies  drove  into  the  yard, 
past  the  house,  and  about  two  hundred  yards  west  into  the 
field.  At  this  moment  there  appeared  about  fifteen  of  the 
settlers  in  a  group,  some  mounted,  some  on  foot,  advancing 
toward  them.  The  settlers  carried  no  visible  arms ;  among 
them  all  were  only  five  small  pocket  pistols.  Marshal  Poole 
descended  from  his  buggy  and  went  forward,  saluting  them 
courteously.  The  foremost  of  the  settlers  addressed  him 
quietly,  asking  the  marshal  not  to  serve  any  writs  until  the 
case  then  pending  in  the  Supreme  Court  should  be  decided. 
He  also  handed  to  the  marshal  the  address  that  Major  Mc- 
Quiddy  had  drawn  up. 

Marshal  Poole  read  the  document  and  said  his  duty  was 
to  serve  the  writs  then  and  there.  The  settlers  replied  with- 
out vehemence  that  they  would  not  allow  him  to  serve 
them. 

They  now  closed  about  the  marshal  and  demanded  that 
he  give  up  his  revolver  and  surrender  to  them,  whereupon 
he  would  be  conducted  in  safety  to  a  station  whence  he 
could  leave  the  county.  He  said  he  would  yield  to  force 
and  go  away  but  he  would  not  give  up  his  revolver,  although 
he  promised  not  to  use  it.  Two  of  the  settlers,  Archibald 
McGregor  and  John  E.  Henderson,  were  then  told  off  to 
guard  the  marshal  and  Clark  to  the  railroad  station  at 
Kingsburg. 

All  this  Hartt  and  Crow  watched  narrowly  from  the 
other  buggy  about  seventy-five  feet  away.  As  the  confer- 
ence with  the  marshal  ended,  Hartt  reached  down  and  seized 
a  rifle. 


SPEAKING   OF    WIDOWS    AND   ORPHANS  221 

"Let's  shoot,"  said  he. 

Without  shifting  his  watchful  gaze  from  the  group  of 
settlers,  Crow  put  a  hand  upon  his  companion's  arm. 

"Not  yet,"  said  he,  "it  isn't  time." 

James  Harris,  from  the  group  about  the  marshal,  rode 
up  to  Hartt  and  Crow  and  cried : 

"Give  up  your  arms !" 

He  was  within  a  few  feet  of  the  buggy.  Crow  laid  his 
hands  upon  a  shotgun  before  him.  He  raised  it  deliberate- 
ly; he  fired  it  into  Harris'  face. 

Henderson  spun  around  at  the  sound  and  whipped  from 
his  pocket  a  small  caliber  revolver.  He  caught  a  glimpse 
of  the  body  of  Harris  slipping  to  the  ground.  He  spurred 
forward,  trying  to  fire  his  revolver  at  Crow.  The  hammer 
clicked  on  the  cartridge  but  the  arm  was  not  discharged. 
Hartt  started  to  descend  from  the  buggy.  As  he  leaned 
over  the  wheel  Henderson's  revolver  worked  at  last  and 
the  bullet  struck  Hartt  in  the  abdomen.10  At  the  same  in- 
stant Crow,  from  his  raised  gun,  shot  Henderson  dead. 

Crow  leaped  to  the  ground  with  a  revolver  in  one  hand 
and  carrying  other  weapons.  He  was  firing  rapidly  into 
the  group  of  settlers.  Iver  Kneutson  was  shot  dead  before 
he  could  draw  his  revolver.  Daniel  Kelly  fell  from  his 
horse  with  three  bullets  through  his  body.  Archibald  Mc- 
Gregor, who  was  armed  with  only  a  penknife,  was  shot 
twice  through  the  breast.  As  he  ran  screaming  toward  a 
pool  of  water,  Crow  at  one  hundred  and  seventy  paces  shot 
him  in  the  back.  He  fell  over  and  lay  still.  Crow  fired  his 
shotgun  and  Edward  Haymaker,  also  unarmed,  fell,  struck 
in  the  head. 

10  Hartt  stated  before  his  death  that  he  had  been  sitting  in  the 
buggy  with  his  feet  on  the  dashboard  and  was  in  that  position  when 
he  was  shot.  The  autopsy  disproved  this  assertion  for  the  bullet 
entered  at  the  upper  boundary  of  the  abdomen  and  traversed  the 
whole  abdominal  cavity  downward,  showing  that  he  had  been  shot 
from  a  pistol  held  above  and  almost  parallel  with  his  body. 


222  STORIES    OF    THE    GREAT    RAILROADS 

All  this  happened,  as  it  seemed,  in  an  instant.  A  stupe- 
faction had  fallen  upon  the  spectators ;  they  could  but  stand 
and  stare.  J.  M.  Patterson  awoke  first.  He  bounded  for- 
ward crying,  "This  has  gone  far  enough!  It  must  stop!" 
One  or  two  ineffectual  shots  were  fired.  As  they  rang  out, 
Major  McQuiddy,  who  all  the  morning  had  been  trying  to 
overtake  the  marshal,  hurried  upon  the  scene  and  took 
charge  of  the  disorganized  settlers. 

Crow  still  stood  there,  weapons  in  hand,  menacing  the 
crowd.  McQuiddy  spoke  rapidly  to  the  marshal,  protest- 
ing against  any  further  action.  As  the  two  advanced,  Crow 
suddenly  doubled  forward  and  dodged  past  the  corner  of 
the  barn  toward  a  field  of  standing  wheat. 

"Don't  let  that  man  escape !"  shouted  McQuiddy,  and  as 
Crow  disappeared  into  the  tall  grain  some  one — just  who 
is  not  likely  ever  to  be  known — followed  upon  his  trail. 

McQuiddy  now  turned  to  the  wounded  and  ordered  them 
to  be  carried  to  Brewer's  house  while  messengers  rode  for 
surgeons.  The  bodies  of  Harris,  Henderson  and  Kneutson 
were  placed  upon  the  porch;  they  were  dead.  Within  the 
house  Kelly,  McGregor  and  Hartt  were  moaning  and 
twitching  with  agony.  Two  doctors  were  brought  from  the 
village  and  found  that  all  were  mortally  hurt  except  Hay- 
maker.11 

This  made  six  persons  done  to  death  that  morning — on 
the  Southern  Pacific's  corruptly  obtained  and  wrongly  held 
grant  from  the  public  domain. 

Very  soon  there  was  another.  Crow,  dodging  through 
the  wheat,  was  making  for  the  house  of  one  Haas,  his 
brother-in-law,  and  likewise  an  opponent  of  the  settlers.  As 
he  ran  he  came  to  the  irrigation  ditch  and  turned  off  along 
its  course;  a  ditch  tender  working  below  saw  him  running. 
At  a  mile  and  a  half  from  Brewer's  there  was  a  bridge 
where  the  road  crossed  the  ditch.  Major  McQuiddy  had 


11  McGregor  and  Kelly  died  before  morning  and  Hartt  on  the 
12th. 


SPEAKING   OF   WIDOWS    AND   ORPHANS  223 

sent  men  on  horseback  to  try  to  catch  Crow.  These  were 
watching  for  him  at  the  bridge.  Haas  and  his  hired  man 
drove  up  from  the  other  direction  in  a  wagon  containing'six 
guns  and  a  supply  of  ammunition. 

"Where's  Crow?"  asked  Haas,  seeing  the  roup  by  the 
bridge. 

At  that  instant  a  cry  arose,  for  Crow  broke  into  sight 
along  the  ditch.  He  stopped,  dodged  back,  and  whipped  up 
his  rifle,  aiming  it  at  George  Hackett.  Before  he  could  fire, 
a  shot  rang  behind  him.  He  swayed,  turned  a  little  and 
pitched  over  upon  his  face — dead.  He  had  been  shot  through 
the  chest. 

The  moment  the  news  of  that  morning's  work  reached 
Hanford,  the  railroad  company  announced  that  its  telegraph 
office  there  had  been  closed  and  the  operator  driven  away 
by  the  League,  and  that  owing  to  the  armed  insurrection 
in  progress  all  trains,  passenger  and  freight,  had  been  an- 
nulled. At  Goshen,  the  other  nearby  station,  no  telegrams 
were  received  except  for  the  railroad  company. 

By  these  means  the  company  secured  control  of  the  news 
and  the  first  reports  described  a  bloody  and  unprovoked  at- 
tack by  desperadoes  on  the  authority  of  the  United  States. 
In  San  Francisco  five  eminent  railroad  officers,  including 
Charles  Crocker  and  W.  W.  Stowe,  at  that  time  the  South- 
ern Pacific's  political  manager  for  California,  hastened  to 
newspaper  offices  and  explained  the  innocence  of  the  com- 
pany and  the  depravity  of  the  ruffians  that  had  defied  the 
Federal  authority. 

Later  the  effect  of  these  communications  was  somewhat 
marred  by  the  appearance  in  San  Francisco  of  Walter 
Leach,  the  Hanford  telegraph  operator,  and  his  statement 
that  he  had  been  removed  and  his  office  closed  not  bv  the 
League,  but  by  the  railroad  company. 

The  sheriff  also  sent  word  that  there  was  no  disturbance 
and  no  reason  why  trains  should  not  run.  Furthermore,  in- 
dependent reporters,  notably  one  for  the  Visalia  Delta,  got 


224  STORIES    OF    THE    GREAT    RAILROADS 

to  the  scene  and  sent  out  unvarnished  reports.  Yet  it  is 
not  to  be  denied  that  a  certain  impression  was  created  by 
the  railroad  company's  tainted  news,  that  this  impression 
still  persists,  and  that  to  this  day  the  affair  is  far  from 
clear  in  many  minds  to  which  it  should  be  no  mystery. 

The  funeral  of  the  slaughtered  settlers  on  the  12th  was 
very  impressive.  All  business  and  work  were  suspended  in 
the  region  and  in  a  procession  of  vehicles  more  than  two 
miles  long,  a  thousand  farmers  followed  the  hearses  to  the 
cemetery.  McGregor  and  Kelly  were  single,  but  Harris  and 
Henderson  had  each  a  wife  and  a  child,  and  Kneutson  left  a 
wife  and  nine  children.  All  of  these  were  presently  evicted 
from  their  homes. 

There  was  no  further  disturbance.  The  farmers  were 
disheartened  by  the  deaths  of  their  comrades  and  by  the 
obviously  resistless  power  of  the  railroad,  against  which  no 
rights,  no  law,  no  protest,  and  no  appeal  could  prevail.  On 
May  26th  five  of  them  went  to  San  Francisco  to  make  what 
terms  they  could  with  this  supreme  power.  As  soon  as  they 
alighted  in  the  city  they  were  arrested  and  thrown  into 
jail,  charged  with  conspiracy  and  resisting  a  Federal  officer. 
Not  one  of  them  had  been  anywhere  near  the  massacre. 

Subsequently  they  were  released,  but  other  arrests  were 
made,  many  indictments  found,  and  John  J.  Doyle,  W.  H. 
Patterson,  Purcell  Prior,  William  B.  Braden  and  Courtney 
Talbot  were*  tried  before  Judge  Lorenzo  Sawyer,  who  prac- 
tically ordered  the  jury  to  convict.  The  jury  refused  to 
convict  of  conspiracy  but  found  the  prisoners  guilty  of  re- 
sisting the  marshal.  They  were  sentenced  to  five  months' 
imprisonment  each  and  were  sent  to  jail. 

A^  foi  the  land,  the  railroad  company  won  that  hand- 
somely, foi  after  the  terrible  work  of  that  May  day  the 
appeals  of  the  three  test  cases  were  abandoned  by  the  dis- 
couraged and  penniless  settlers  and  Judge  Sawyer's  deci- 
sion stooa.  Years  afterward  the  same  issue  was  raised 


SPEAKING   OF    WIDOWS    AND   ORPHANS  225 

again  in  another  county  of  the  state,  and,  being  carried 
to  the  Supreme  Court,  the  court  ruled  against  the  rail- 
road and  upheld  the  principle  for  which  the  settlers  had  con- 
tended,12 so  that  their  position  must  have  been  as  legally 
sound  as  it  was  morally  just. 

But  the  land  for  which  they  had  contended  was  none  the 
less  lost  to  them  and  became  a  part  of  that  total  on  which 
you  and  I  have  the  pleasure  of  paying  interest  charges,  for 
it  was  all  swept  into  the  capitalization.  Other  additions 
thereto  occasioned  by  this  episode  were  not  great:  some- 
thing for  legal  expenses,  something  for  newspaper  articles, 
something  for  political  dirty-work  men,  something  for 
Hartt  and  Crow,  and  a  few  other  similar  items.  That  was 
all,  because  the  funerals  of  the  farmers  killed  were  paid 
for  by  friends  and  neighbors  and  cost  the  company  literally 
nothing.  No  doubt  these  necessary  expenses  would  have 
been  borne  by  the  orphaned  and  dispossessed  families  of 
the  deceased  if  the  railroad  company  had  left  them  any- 
thing to  pay  with. 

This  is  the  battle  of  Mussel  Slough,  to  which  you  may 
have  heard  some  reference.  It  is  all  over  now;  the  South- 
ern Pacific  is  triumphant.  But  for  years  the  settlers  of 
Tulare  County  held  memorial  services  on  each  anniversary 
of  that  bloody  day  at  Brewer's  Farm.  They  remembered, 
though  the  rest  of  the  world  and  the  railroad  company  speed- 
ily forgot.13 


"Southern  Pacific  Company  versus  Groeck,  74  Fed.  385,  183 
U.  S.  690.  In  the  case  of  Boyd  versus  Brinckin,  decided  by  the 
California  Supreme  Court  a  few  months  after  the  massacre  the 
same  principle  was  involved  and' was  upheld  by  the  unanimous 
decision  of  the  Court,  Chief  Justice  Sharpstein  writing  the  opinion. 

13  The  authorities  for  this  chapter  are  the  statements  of  sur- 
vivors of  the  massacre;  the  statements  of  eyewitnesses  published 
at  the  time;  the  accounts  printed  by  the  San  Francisco  Chronicle, 
Alta  California,  Bulletin,  Call,  and  Examiner,  and  particularly  the 
detailed  reports  in  the  Visalia  Delta;  the  rare  pamphlet  entitled 
"The  Struggle  of  the  Mussel  Slough  Settlers;"  testimony  given  at 
the  trials;  and  the  account  printed  in  the  Atlas  of  Kings  County. 


CHAPTER  X. 

WHAT  THE  LAW  DOES  FOR  ITS. 

In  the  grip  of  the  great  power  of  the  Southern  Pacific 
Railroad,  the  people  of  California  learned  that  they  had 
small  advantage  from  those  wonderful  gifts  of  nature 
wherewith  their  state  ran  over.  One  resource  after  another 
was  discovered  and  developed,  gave  forth  its  promise  of 
prosperity,  and  was  incorporated  into  the  money-making 
machine  of  the  railroad  monopoly,  or  asphyxiated  by  its 
high  rates. 

The  richness  of  the  land  was  for  the  railroad  company 
and  not  for  the  producers. 

Orange  growers  found  that  while  they  could  raise  the 
best  and  cheapest  of  all  oranges  and  in  unequaled  abun- 
dance, the  freight  charges  absorbed  the  profits  of  their  toil. 

California  wines  attained  a  just  celebrity ;  but  if  they  were 
to  be  shipped  by  rail,  the  freight  rates  barred  them  from 
general  use  and  defeated  the  wine  growers. 

Wonderful  crops  of  deciduous  fruits,  peaches,  plums, 
apples,  cherries  and  pears,  sometimes  rotted  on  the  trees; 
no  man  could  afford  to  ship  them  to  market. 

This  rich  adobe  soil,  surpassingly  fertile,  was  found  to 
produce  such  wheat  as  never  before  had  been  seen;  stalks 
six  feet  high,  with  large,  firm  berries,  a  prodigious  yield; 
but  when  vast  areas  had  been  sown  in  wheat,  the  farmers 
discovered  that  at  the  freight  rates  exacted  by  the  railroad 
monopoly  no  profit  lay  in  wheat  growing.  All  the  world  was 

226 


WHAT  THE  LAW  DOES  FOR  US  227 

eager  for  California  wheat;  vessels  came  from  Liverpool 
around  Cape  Horn  to  get  it,  and  for  the  carriage  of  a  few 
miles  from  the  farms  to  the  seaport  the  railroad  charged  so 
much  that  nothing  remained  to  the  farmer. 

Here  lay  the  world's  vineyard,  orchard  and  granary ;  what 
Swinburne  calls  God's  three  chief  gifts  to  man,  his  "bread 
and  oil  and  wine,"  showered  upon  it  in  overmeasure,  and 
the  railroad  monopoly  took  the  tilth  of  all  for  its  own  cof- 
fers. This  great  state,  seven  hundred  and  seventy  miles 
long  and  about  two  hundred  and  fifty  miles  wide,  timbered, 
watered — with  so  much  gold  that  even  now  over  eighteen 
million  dollars'  worth  is  taken  yearly  from  its  soil;  with 
silver,  platinum,  petroleum,  and  other  mineral  wealth ;  with 
fertile  soil;  with  the  advantage  of  a  singularly  delectable 
climate;  with  so  much  variety  of  products — seems  to  have 
been  endowed  with  every  good  thing  that  nature  knows,  and 
beyond  any  other  region  of  earth.  One  might  think  that  all 
the  natural  forces  had  intelligently  combined  to  see  how 
much  they  could  do  here  for  man  and  his  life ;  and,  to  crown 
their  work,  had  attracted  a  population  of  the  best  fiber  the 
American  race  had  produced. 

And  yet  the  population  of  this  splendid  state  in  1900,  thir- 
ty-one years  after  the  completing  of  the  transcontinental 
railroad,  was  only  1,485,053.  This  is  the  showing  of  its 
growth  by  the  United  States  census : 

1850  92,597 

1860 379,994 

1870  560,247 

1880  864,694 

1890 1 ,208, 1 30 

1900 1,485,053 

From  1890  to  1900  only  277,000  increase.  Is  not  that 
significant  ? 


228 


STORIES    OF    THE    GREAT    RAILROADS 


COMPARATIVE  AREAS  AND  POPULATIONS. 


Area  in  Square 
Miles 

Population 

California                         .  .         

158,360 

1  485,053 

France    

207,054 

38,961,945 

208,830 

63,886,000 

147,655 

49,732,952 

Italy                    .          

110,550 

32,475,253 

Be'tHum                   .               

11,373 

7,074,910 

Massachusetts    

8,315 

2,805,346 

7,815 

1,883,669 

Illinois    

56,650 

4,821,550 

The  true  garden  spot  of  the  world,  and  after  forty  years 
of  railroad  domination  it  had  in  1910,  2,377,549  inhabitants 
in  an  area  greater  than  Ohio,  Illinois,  Indiana,  Massachu- 
setts and  New  Jersey  together;  more  than  forty  per  cent 
larger  than  Italy  with  about  one-fifteenth  of  Italy's  popula- 
tion! So  that  to  this  day,  after  the  traveler  has  appre- 
hended something  of  the  unmatched  resources  of  the  coun- 
try, the  greatest  of  all  its  wonders  is  its  sparsely  populated 
areas. 

The  same  lawless  power  that  perverted  the  government 
and  seized  the  courts  has  throttled  California's  development 
and  deprived  its  people  of  the  products  of  their  industry. 
Men  have  sown,  and  this  power,  cunningly  adjusting  its 
rates  for  that  purpose,  has  year  after  year  taken  the  harvest. 

You  say:  For  this  abnormal  condition  there  must  have 
been  a  remedy.  This  nation  of  ours  is  ruled  by  law  and 
majorities.  It  must  have  been  possible  to  subdue  or  to 
regulate  this  railroad.  The  fault  must  have  been  with  the 
people. 

No — no  fault  with  the  people.  The  people  were  all  right. 
The  fault  lay  in  the  system.  The  choice  offered  to  the  peo- 
ple was  between  nominal  rule  by  the  Republican  party  and 
nominal  rule  by  the  Democratic  party.  When  they  wearied 
of  railroad  tyranny  under  the  name  of  a  Republican  admin- 
istration, they  revolted  and  introduced  railroad  tyranny  un- 


WHAT  THE  LAW  DOES  FOR  US  229 

/ 

der  the  name  of  a  Democratic  administration.  The  monop- 
oly controlled  the  Democratic  administration  as  easily  as  it 
had  controlled  the  Republican.  It  was  a  power  too  great  to 
be  withstood  and  made  great  by  the  money  of  the  commu- 
nity that  it  now  oppressed. 

But  how  about  the  law?  How  about  the  blessed  thing 
called  regulation?  How  about  the  government  supervision 
of  corporations? 

That  is  the  very  thing  I  want  most  to  tell  you  about. 
Come,  now,  you  that  think  you  can  deal  with  this  problem 
by  regulation.  Come  and  have  a  good  look  at  this  exhibit. 
It  will  not  give  you  cheer  but  it  ought  to  furnish  unlimited 
instruction. 

Law?  There  was  nothing  but  law;  and  constitutions; 
and  provisions;  and  orders;  and  amendments;  and  fresh 
statutes;  and  then  more  law;  all  aimed  and  shaped  to  regu- 
late, restrict  and  control  this  monster,  and  the  monster  never 
gave  a  hoot  for  all  of  them.  Every  step  of  its  progress  had 
been  marked  by  the  violation  of  some  law  or  some  article 
of  the  holy  constitution,  and  it  strode  calmly  and  cheerfully 
over  all,  never  minding  in  the  least. 

For  instance :  There  was  an  article  in  the  Constitution  of 
the  State  of  California  that  expressly  forbade  a  certain  kind 
of  lease  between  railroad  companies.  So  the  monopoly 
made  something  like  a  dozen  leases  of  that  variety.  There 
was  a  section  of  the  penal  code  that  forbade  an  interchange 
of  stock  between  railroad  companies.  So  the  monopoly  pro- 
ceeded to  interchange  the  stock  of  its  subsidiary  railroad 
companies.  There  was  an  article  in  the  state  constitution 
providing  that  the  state  railroad  commissioners  should  have 
the  power  to  fix  passenger  and  freight  rates.  And  when  on 
one  famous  occasion  these  commissioners  undertook  to  ex- 
ercise this  power,  the  monopoly  brushed  the  commissioners 
out  of  its  way  and  continued  to  make  its  own  rates  in  its  old 
fashion  on  its  old  basis. 


230  STORIES    OF    THE    GREAT    RAILROADS 

And  what  was  that  basis  ?    All  the  traffic  would  bear. 
Some  of  these  incidents  should  be  told  in  detail. 
1.     Thus  Section  20  of  Article  XII  of  the  Constitution 
of  California  contains  this  provision: 

And  whenever  a  railroad  corporation  shall  for  the  purpose  of 
competing  with  any  other  common  carrier  lower  its  rates  for 
transportation  of  passengers  or  freight  from  one  point  to  another, 
such  railroad  rate  shall  not  be  again  raised  or  increased  from  such 
standard  without  the  consent  of  the  governmental  authority  in 
which  shall  be  vested  the  power  to  regulate  fares  and  freights. 

For  many  years  the  oppressed  and  defrauded  merchants 
of  San  Francisco  held  to  the  belief  that  the  one  sure  remedy 
for  their  troubles  was  in  competition.  If  they  could  only 
get  another  railroad,  competition  would  compel  the  South- 
ern-Central-Pacific oligarchy  to  reduce  rates  and  practice 
decency.  Many  times  their  hopes  of  competition  had  been 
raised  from  many  sources,  but  always  to  be  disappointed. 
The  new  line  was  seized,  controlled  or  absorbed  by  the 
oligarchy,  or  headed  off  if  it  was  approaching  from  the 
East.  At  last  the  merchants  formed  their  own  company 
and  built  their  own  line  from  San  Francisco  Bay  down  to 
rich  San  Joaquin  Valley,  200  miles  and  more. 

At  once  the  new  line  made  rates  much  lower  than  the 
Southern  Pacific's  tariff,  and  the  Southern  Pacific  was 
obliged  to  meet  the  reductions.  Beautiful  proof  of  the  vir- 
tue of  competition  as  a  cure-all !  But  the  Atchison,  Topeka 
&  Santa  Fe — which  had  acquired  the  old  Atlantic  &  Pa- 
cific (a  land  grant  railroad  across  Colorado  and  New  Mex- 
ico)— now  extended  its  line  westward,  secured  an  entrance 
to  California  and  appeared  on  the  scene  to  offer  the  grand- 
est promise  of  a  perfect  competition.  If  the  Santa  Fe  could 
be  brought  to  San  Francisco  there  would  be  a  compet- 
ing outlet  to  the  Atlantic.  So  the  merchants  sold  their 
San  Joaquin  Valley  line  to  the  Santa  Fe  and  amidst  great 
rejoicing  the  Santa  Fe  entered  San  Francisco  early  in  1900. 


WHAT  THE  LAW  DOES  FOR  US  231 

Immediately,  the  Santa  Fe  and  the  Southern  Pacific  re- 
stored the  rates  in  the  San  Joaquin  Valley  generally  to  the 
basis  that  had  prevailed  before  the  merchants'  road  was 
built,  and  the  people  of  San  Francisco  discovered  too  late 
that  the  addition  of  a  new  line  to  their  facilities  made  no 
difference  in  their  situation,  for  the  simple  reason  that  the 
Southern  Pacific  owned  $17,000,000  of  stock  in  the  Santa 
Fe  and  the  two  roads  had  a  close  traffic  and  trackage  ar- 
rangement. Two  roads  with  but  a  single  thought;  two  tar- 
iffs that  gouged  as  one. 

Among  the  passenger  rates  that  had  been  reduced  by  the 
merchants'  road  competition  was  the  passenger  rate  from 
San  Francisco  to  Fresno.  This  had  been  $5.90;  it  was  cut 
to  $3.75.  When  the  merchants'  road  was  sold,  the  old 
rate  of  $5.90  to  Fresno  was  restored.  This  was  in  March, 
1900.  Mr.  E.  B.  Edson  brought  suit  to  test  under  the  con- 
stitution the  legality  of  the  restored  rate,  and  the  State 
Board  of  Railroad  Commissioners  joined  him.  In  the  Supe- 
rior Court  Judge  George  H.  Bahrs  gave  judgment  for  Ed- 
son  and  the  commissioners.  The  Southern  Pacific  appealed, 
and  on  May  23,  1901,  the  Supreme  Court  reversed  Judge 
Bahrs  and  remanded  the  case  for  a  new  trial.1 

On  the  retrial  in  the  lower  court  in  July,  1904,  Judge 
Frank  H.  Kerrigan  decided  in  favor  of  the  railroad  com- 
pany, holding  that  the  rate  had  never  been  reduced. 

The  ground  for  this  decision  is  worth  noting.  It  seems 
that  when  the  Southern  Pacific  reduced  the  rate  to  Fresno 
to  $3.75,  it  issued  a  new  form  of  ticket  good  only  for  the 
day  of  issue.  The  old  style  of  ticket,  price  $5.90,  and 
good  for  six  months,  it  still  kept  on  sale.  Nobody  ever 
wanted  or  bought  the  old  style  of  ticket  at  $5.90,  but  it 
could  be  bought  if  desired.  Hence,  in  Judge  Kerrigan's 
opinion,  there  had  been  no  reduction  of  rates. 

1  Edson  et  al.  versus  Southern  Pacific  Company,  133  Cal.,  25. 


232  STORIES    OF    THE    GREAT    RAILROADS 

Edson  and  the  commissioners  now  appealed.  Chief  Jus- 
tice Beatty  wrote  the  decision  of  the  Supreme  Court,  which 
entirely  upheld  the  railroad  company,  and  affirmed  the  valid- 
ity of  the  $5.90  charge — not  because  the  rate  had  not  been 
lowered,  but  because  it  "had  not  been  lowered  for  the  pur- 
pose of  competition  within  the  proper  construction  of  the 
constitution."  Judge  McFarland,  an  associate  judge  of  the 
Supreme  Court  and  previously  a  Southern  Pacific  attorney, 
concurred  with  Chief  Justice  Beatty,  but  added  an  even 
stronger  opinion  of  his  own,  in  which  he  fiercely  attacked 
Section  20  of  Article  XII  of  the  constitution,  speaking  of  it 
as  containing  "a  drastic  and  ruinous  penalty." 

One  might  think  that  on  such  grounds  any  law  anywhere 
could  be  upset  at  any  time. 

Incidentally,  it  may  be  interesting  to  note  that  Judge 
Bahrs  was  retired  to  private  life  at  the  end  of  his  term  and 
Judge  Kerrigan  was  elevated  to  the  Appellate  Court. 

2.  Among  the  choice  presents  the  four  gentlemen  of  Sac- 
ramento gathered  from  the  United  States  was  a  land  grant 
for  building  a  railroad  from  Roseville,  eighteen  miles  north 
of  Sacramento,  to  Portland,  Oregon.  This  grant  was  of 
every  alternate  twenty  square  miles  (ten  on  each  side  of  the 
track)  conditioned  upon  the  building  of  the  road  the  entire 
distance.  The  Congenial  Four  built  only  as  far  as  Red- 
ding, 152  miles,  but  they  took  possession  of  the  land  grant 
for  the  entire  projected  line  of  the  road. 

It  was  immensely  valuable  land,  comprising  some  of  the 
best  timber  on  the  continent.  In  1882  the  time  limit  for 
completing  th^  road  had  long  expired  so  that,  except  for  the 
line  from  Sacramento  to  Redding,  the  grant  was  forfeited. 
To  reclaim  it  an  act  of  Congress  was  necessary.  Every  at- 
tempt to  pass  such  an  act  and  to  return  to  the  public  the 
land  justly  belonging  thereto  was  defeated.  The  four  gen- 
tlemen had  no  more  right  to  the  land  than  they  had  to  the 
Washington  monument,  but  they  held  it  nevertheless,  and 
reaped  millions  from  it. 


WHAT  THE  LAW  DOES  FOR  US  233 

In  the  election  of  1882,  Mr.  Barclay  Henley,  a  young  at- 
torney of  Santa  Rosa,  who  had  studied  the  land  grant  ques- 
tion, was  nominated  for  Congress  on  a  platform  demanding 
that  the  forfeited  land  grants  should  be  returned  to  the  pub- 
lic domain.  On  this  issue  he  was  elected  and  promptly  in- 
troduced bills  2  for  the  reclamation  of  the  forfeited  grants 
of  the  Roseville-Portland  line,  for  the  reclamation  of  the 
forfeited  land  grants  of  the  Northern  Pacific — colossal  grabs 
that  have  somehow  escaped  the  attention  they  deserve — 
and  some  other  bills  having  similar  objects.  The  Congenial 
Four  bitterly  fought  the  bill  that  sought  to  make  them  dis- 
gorge, bringing  down  Judge  Dillon  and  General  Roger  A. 
Pryor  from  New  York  to  argue  in  their  behalf  before  the 
Public  Lands  Committee  of  the  House,  and  rilling  the  lob- 
bies with  their  hired  men. 

But  Mr.  Henley  had  absorbed  the  whole  subject  and  he 
made  of  it  so  clean  and  masterly  an  expression  that  he  car- 
ried the  House  with  him.  After  a  time,  the  only  active 
opposition  he  encountered  was  from  the  late  Thomas  B. 
Reed,  of  Maine,  sometime  Speaker  of  the  House.  When 
the  vote  came  all  the  bills  were  passed  by  large  majorities. 
They  went  next  to  the  Senate.  There  they  were  promptly 
buried,  nor  could  any  argument  or  appeal  ever  resurrect 
them.  The  four  congenial  gentlemen  remained  in  posses- 
sion of  the  land  to  which  they  were  not  entitled,  and  it  is 
today  reflected  in  the  capitalization  of  the  Southern  Pacific 
railroad  that  the  public  pays  exorbitant  freight  and  pas- 
senger rates  to  support, 

This  must  be  a  cheerful  thought  to  all  of  us.  First  we  are 
cheated  of  millions  upon  millions  of  acres  of  our  lands,  rich 
in  those  natural  resources  we  are  now  so  anxious  to  con- 


2  For  the  particularly  interesting  debate  on  the  first  of  these 
bills,  see  Congressional  Record  Forty-eighth  Congress,  First  Ses- 
sion, pp.  4814-22.  The  pleas  made  in  behalf  of  the  railroad  are 
a  revelation  to  anyone  that  will  dig  them  out 


234  STORIES    OF    THE    GREAT    RAILROADS 

serve;  next  we  pay  freight  rates  on  the  value  of  the  land 
that  has  been  stolen  from  us ;  then  as  the  value  of  this  land 
increases  with  the  increase  of  population,  it  becomes  addi- 
tional capital  on  which  to  base  additional  rates  to  lay  addi- 
tional burdens  upon  the  ultimate  consumers,  85  per  cent 
of  whom  are  poor  or  very  poor.  The  finite  mind  seems  in- 
capable of  a  grander  concept. 

3.  But  the  land  grab  story  has  still  a  sequel  not  less 
delectable.  It  shows  how  even  the  best  of  movements  for 
the  public  benefit  may  easily  be  twisted  into  further  advan- 
tages for  the  fortunate  and  further  burdens  for  the  people 
at  the  bottom. 

About  fifteen  years  ago  the  need  of  conservation  began 
to  be  forced,  very  tardily,  upon  our  attention  by  the  obvi- 
ous fact  that  we  should  shortly  be  without  timber  as  with- 
out public  lands.  Congress,  therefore,  set  apart  regions  a's 
inalienable  forest  reserves  for  the  nation.  An  honest  man 
in  the  Senate,  looking  over  the  project,  saw  that  while  its 
main  features  were  admirable,  it  contained  one  defect,  eas- 
ily remedied.  It  did  not  provide  for  the  cases  of  men  that 
had  settled  upon  the  land  now  sequestered  for  public  pur- 
poses. That  is  to  say,  in  the  middle  of  a  reserve  a  settler 
might  be  tilling  a  farm,  and  by  the  establishing  of  a  forest 
reserve  about  him  might  find  himself  utterly  cut  off  from 
communication  with  the  rest  of  the  world,  whereby  his  farm 
would  be  made  valueless. 

This  senator,  therefore,  intrc  iced  a  measure  providing 
that  any  dwellers  on  the  land  taken  for  forest  reserves 
should  have  the  right  to  exchange  their  farms  for  an  equal 
amount  of  public  land  elsewhere.  This  just  and  reasonabh 
amendment  fell  into  the  hands  of  an  eminent  friend  of  the 
Interests  in  the  Senate  and  another  in  the  house.  They 
changed  the  words  "dwellers  on"  to  "holders  of"  and,  at  the 
last  minute  before  the  end  of  the  session,  it  was  rushed 
through  the  Senate,  giving  no  chance  for  amendment. 


WHAT  THE  LAW  DOES  FOR  US  2V35 

The  railroad  companies  immediately  took  advantage  of 
this  provision.  They  gave  up  fifty  millions  of  acres  of 
worthless  barrens  in  Nevada  and  Arizona  where  nothing 
ever  grew,  or  ever  would  grow,  but  cactus  and  sagebrush, 
and  received  in  exchange  choice  timber  lands  in  Oregon, 
Northern  California  and  Washington,  nor  could  any  pro- 
test or  outcry  avail  to  check  this  monstrous  fraud. 

Only  by  a  narrow  margin  did  they  fail  of  getting  those 
invaluable  coal  deposits  in  Alaska  that  are  now  the  subject 
of  national  controversy.  They  had  planned  to  grab  all  such 
lands,  but  found  they  were  stopped  by  the  fact  that  the 
homestead  law  did  not  extend  to  Alaska.  Their  newspapers 
in  all  parts  of  the  country  then  began  to  demand  amend- 
ment of  the  law  so  that  Alaska  should  be  thrown  open  to 
homestead  entry.  When  the  agitation  had  proceeded  long 
enough,  a  bill  to  this  effect  was  introduced  in  Congress  and 
slated  for  immediate  passage.  One  man,  Judge  Joseph  H. 
Call,  of  Los  Angeles,  well  known  as  an  opponent  of  cor- 
poration knavery,  discovered  what  was  afoot  and  hastily 
warned  a  group  of  honest  Congressmen.  By  these  the  bill 
was  so  amended  as  to  exclude  the  railroads  from  the  benefit 
of  the  extension. 

Meantime,  those  choicest  timber  lands  in  California,  Ore- 
gon and  Washington,  before  referred  to,  had  been  obligingly 
withheld  from  entry.  When  the  schemers  found  that  they 
were  beaten  off  from  Alaska,  the  timber  tract  was  as 
opportunely  restored  to  entry  and  the  railroad  companies 
filed  for  and  grabbed  it  all — about  fifty  million  acres.  I 
suggest  that  the  next  Conservation  Conference  in  this  coun- 
try devote  itself  to  this  little  fact. 

4.  But  to  return  to  the  experiences  of  California.  And 
here  I  come  upon  the  main  story  I  desire  to  tell  because  it 
illustrates  so  sweetly  just  how  much  effect  rate  regulation, 
supervision,  restriction,  Hepburn  bills,  commerce  courts, 
Strenuous  gentlemen,  and  the  like  agencies,  can  have  upon 


236  STORIES    OF    THE    GREAT    RAILROADS 

railroad  companies  when  the  railroad  companies  do  not  care 
to  observe  such  trifles. 

Also  something  else.  It  illustrates  and  shows  us  pre- 
cisely how  and  to  what  extent  you  and  I  and  all  of  us  pay 
for  these  fortunes;  pay  for  them  once  when  they  are  made 
and  then  the  interest  on  that,  and  the  interest  on  that,  many 
times  over,  until  the  dollar  we  paid  forty  years  ago  for  Mr. 
Huntington's  "explanations"  to  Congressmen  has  become 
two  dollars  that  we  pay  year  after  year;  until  all  the  wealth 
that  was  stolen,  filched,  and  conveyed  from  any  one  of  these 
enterprises  in  the  palmy  days  of  its  looting,  is  the  basis  of 
a  bill  annually  presented  to  us  and  for  which  we  must  dig 
up  the  money. 

If  the  looting  were  done  when  it  was  done  and  we  were 
rid  of  it  thereafter,  the  case  could  not  be  so  bad.  But  every 
dollar  of  loot  in  any  railroad  enterprise,  all  the  bribe  money 
and  "legal  expenses,"  the  jobs  in  the  construction  accounts 
and  the  swindles  in  the  interlacing  leases,  become,  all  of 
them,  just  so  many  additions  to  the  capital  account  on  which 
interest  must  be  paid  through  the  rates  that  come  home  to 
us  all. 

With  this  little  preface,  necessary  to  make  clear  the  true 
meaning  of  the  characters  and  incidents  we  shall  introduce, 
we  are  now  ready  for  our  story. 

About  thirty  years  ago  this  idea  of  curing  evils  by  regu- 
lating them  laid  strong  hold  upon  the  people  of  California, 
and  in  the  brave  new  constitution  of  1879,  to  which  we  have 
before  referred,  they  determined  to  deal  once  and  for  all 
with  the  railroad  monopoly  question.  So  in  Section  20  of 
Article  XII,  they  gave  to  the  Board  of  Railroad  Commis- 
sioners every  conceivable  power  "to  establish  rates  of 
charge  for  the  transportation  of  passengers  and  freight  by 
railroad  and  other  transportation  companies,"  to  supervise 
and  control  such  companies,  and  to  enforce  its  will  upon 
them.  For  failure  to  obey  the  commissioners'  rulings, 


WHAT  THE  LAW  DOES  FOR  US  237 

severe  penalties  were  provided,  the  companies  to  pay  heavy 
fines  and  their  officers  to  be  punished  with  fine  and  impris- 
onment. The  section  concludes  with  this  explicit  state- 
ment: 

In  all  controversies,  civil  and  criminal,  the  rates  of  fares  and 
freight  established  by  said  commission  shall  be  deemed  conclusively 
just  and  reasonable. 

The  force  of  regulation  could  no  farther  go.  Even  the 
most  fervid  regulationist  has  never  suggested  anything 
approaching  this  achievement. 

Some  years  afterwards,  the  state  legislature,  finding  that 
for  some  reason  blessed  regulation  did  not  produce  the  ex- 
pected good  things,  tried  to  strengthen  the  commission's 
hands  with  the  majesty  of  statutes,  enacting  that  whenever 
the  commission  determined  upon  a  rate  it  should  file  the 
new  tariff  schedule  with  the  railroad  company  affected,  and 
that  twenty  days  after  the  new  rate  should  go  into  effect 
and  become  the  law  of  the  land. 

Although  it  possessed  these  unequalled  and  ample  powers, 
the  commission  never  did  a  blessed  thing  but  make  reports 
and  draw  its  several  salaries;  it  was  armed  with  thunder 
bolts  and  used  only  goose  quills.  Mr.  Huntington  wrote 
once  to  General  Colton:  "I  notice  you  are  looking  after 
the  state  railroad  commisisoners.  I  think  it  is  time."8 
Whether  this  "looking  after"  had  any  relation  to  the  pre- 
vailing inertia,  the  reader  can  surmise  as  well  as  I. 

But  it  appears  that  in  1894  there  was  one  of  the  periodical 
revolts  against  the  Southern  Pacific,  which  had  so  long  been 
the  constituted  authority  and  government  of  the  state,  and 
this  treasonable  and  unruly  spirit,  seizing  upon  the  Demo- 
cratic party,  found  expression  in  the  following  resolution 
that  the  Democratic  State  Convention  of  that  year  em- 
bodied in  its  party  platform: 

Resolved,  That  the  charges  for  the  transportation  of  freight  in 

4  Letter  of  March  7,  1877.    See  foregoing  chapter. 


238  STORIES    OF    THE    GREAT    RAILROADS 

California  by  the  Southern  Pacific  Company  of  Kentucky4  and  its 
leased  lines,  should  be  subjected  to  an  average  reduction  of  not 
less  than  twenty-five  per  cent,  and  we  pledge  our  nominees  for  Rail- 
road Commissioner  to  make  this  reduction. 

You  must  recall  the  marvelous  and  perfect  political  or- 
ganization of  the  Central  Pacific  before  you  can  comprehend 
the  force  of  the  revolt  that  produced  this  resolution.  The 
truth  is  the  grain  growers  were  threatened  with  ruin.  Some 
of  them  were  supporting  the  burden  of  heavy  mortgages 
while  from  their  abundant  crops  the  railroad  was  filching 
most  of  the  profits.  They  were,  therefore,  in  the  mood  of 
men  not  to  be  trifled  with. 

No  doubt  the  passage  of  that  resolution  was  a  treasonable 
act  that  the  railroad's  political  department  could  easily  have 
prevented.  A  few  years  before,  it  would  have  done  so,  but 
it  had  learned  that  regulative  laws  and  constitutional  pro- 
visions were  really  ineffective;  and  besides,  there  was  the 
memory  of  that  bloody  May  day  at  Brewer's  Farm.  The 
country  had  made  so  much  fuss  about  the  killing  of  a  few 
farmers;  "The  Massacre  at  Mussel  Slough"  it  was  univer- 
sally called,  and  the  Southern  Pacific  the  murderer  of  those 
men.  It  was  not  nice  for  professed  philanthropists  and  art 
connoisseurs.  Even  the  subsidized  editors  always  gagged 
a  little  about  Mussel  Slough. 

Evidently  there  was  a  point  of  endurance  beyond  which 
men  could  not  be  driven  with  entire  safety  to  the  drivers. 
Wisdom  and  experience  indicated  that  no  harm  could  come 
from  such  a  resolution  nor  from  a  campaign  conducted  on 
these  lines;  it  was  only  a  useful  and  desirable  vent  for 
public  clamor  that  otherwise  might  have  worse  results. 

So  the  convention  nominate^  its  candidates  on  this  plat- 
form, and  the  party  went  into  the  campaign  with  at  last  the 
similitude  of  an  issue  to  fight  for.  The  state  that  year  was 

4  The  various  consolidations  of  the  Central  Pacific,  Southern 
Pacific,  and  a  score  of  other  lines  had  been  merged  into  a  company 
bearing  this  name  incorporated  in  Kentucky,  March  17,  1884. 


WHAT  THE  LAW  DOES  FOR  US  239 

in  one  of  its  moods  for  a  change  from  the  machine  that  had 
a  Republican  name  to  the  machine  that  had  a  Democratic 
name,  and  two  of  the  three  Democratic  candidates  for 
railroad  commissioner  were  elected,  constituting  a  majority 
of  the  Board. 

In  August,  1895,  seven  months  after  taking  office,  the 
commissioners  reached  (one  would  think  with  sufficient  de- 
liberation) the  important  matter  of  freight  rates,  and  on 
September  12th  and  13th  adopted  two  resolutions,  the  first 
declaring  a  reduction  in  grain  rates  of  not  twenty-five  but 
eight  per  cent,  and  the  other  expressing  an  opinion  that  all 
rates  should  be  reduced,  and  at  some  time  the  commission- 
ers would  get  to  work  and  reduce  them — perhaps  when  the 
robins  should  nest  again. 

To  this  lame  and  impotent  conclusion  came  the  revolt  of 
the  grain  growers  and  the  valorous  resolve  of  the  Demo- 
cratic State  Convention. 

But  you  should  wait  a  little ;  the  best  is  yet  to  come.  This 
is  a  very  famous  case  and  tested  to  the  utmost  the  whole 
power  of  the  regulative  theory.  If  there  ever  were  in  the 
United  States  railroad  rates  that  ought  to  be  reduced,  they 
were  the  grain  rates  in  California;  and  if  there  ever  could 
be  anywhere  a  force  able  by  law  and  constitution  to  reduce 
such  rates,  it  was  the  California  Board  of  Railroad  Commis- 
sioners. 

Whatever  rates  that  Board  might  decide  upon  (said  the 
constitution  of  the  state)  should  be  valid  and  "in  all  con- 
troversies, civil  or  criminal,  the  rates  of  fares  and  freights 
established  by  said  commission"  should  "be  deemed  con- 
clusively just  and  reasonable." 

Note  what  happened. 

The  railroad  company  went  straightway  before  Judge 
Joseph  McKenna,  then  of  the  United  States  Circuit  Court, 
now  of  the  United  States  Supreme  Court,  and  on  October 
14th  obtained  a  temporary  injunction  restraining  the  com- 


240  STORIES    OF    THE    GREAT    RAILROADS 

mission  from  carrying  out  or  enforcing  the  reduction  it  had 
declared.5 

Of  course.  The  United  States  Circuit  Court  takes  prece- 
dence over  authorities  constituted  by  the  state. 

Soon  after,  the  case  came  up  again  on  a  motion  to  con- 
tinue the  injunction  and  the  issue  was  joined.  There  was  a 
grand  array  of  counsel — W.  F.  Herrin,  successor  of  "Bill" 
Stowe  as  chief  solicitor  and  political  manager  for  the  South- 
ern Pacific,  former  Judge  John  Garber,  E.  A.  Pillsbury,  and 
others  for  the  distressed  railroad  company;  Attorney-Gen- 
eral Fitzgerald,  former  Judge  R.  Y.  Hayne,  and  others  for 
the  commissioners.  The  case  lasted  for  more  than  a  year. 

The  plea  of  the  company  was  that  it  was  too  poor  to 
afford  any  reduction  of  rates  and  that  the  action  of  the  com- 
missioners, unless  prevented  by  the  court,  would  so  injure 
the  company  and  decrease  its  revenues  that  it  would  amount 
to  the  confiscation  of  property  expressly  prohibited  by  the 
Constitution  of  the  United  States  of  America. 

Please  note  this.  You  see  now  we  are  coming  down  to 
fundamentals.  Rates  could  not  be  reduced  because  under 
existing  conditions  the  Constitution  of  the  United  States 
practically  forbade  them  to  be  reduced. 

To  show  the  extreme  poverty  of  the  company  were  ad- 
duced many  figures. 

First,  there  was  the  capitalization  of  the  company  and  of 
its  constituent  companies,  with  their  bonded  debt.  Then 
there  was  a  computation  showing  that  for  the  last  eighteen 
months  the  whole  company  (which  included  lines  in  Ore- 
gon, Arizona,  New  Mexico,  and  elsewhere)  had  been  oper- 
ated at  a  loss — on  this  capitalization.  Then  there  was  a  list 
of  certain  constituent  lines  of  the  Southern  Pacific,  to- wit: 
the  Oregon  &  California,  the  Central  Pacific,  the  California 
Pacific,  the  Northern  Railway,  the  Northern  California 

"The  title  is  the  Southern  Pacific  Company  versus  The  Board 
of  Railroad  Commissioners  of  the  State  of  California.  Number  of 
the  case,  12,  127. 


WHAT  THE  LAW  DOES  FOR  US  241 

Railway,  the  South  Pacific  Coast  Railway,  and  the  Southern 
Pacific  of  California;  after  which  the  bill  of  the  company 
avers  as  follows : 

Fifth,  That  none  of  said  corporations,  other  than  the  said 
California  Pacific  Railroad  Company  and  the  said  Northern  Railway 
Company,  have  for  more  than  one  year  last  past  received  or  been 
entitled  to  receive  any  profit  or  net  income  whatsoever  above  their 
actual  expenses  or  any  compensation  for  the  use  of  their  equipment 
out  of  the  funds  payable  to  them  by  your  orator  under  the  terms 
of  said  leases  or  otherwise,  nor  have  any  of  said  corporations  paid, 
or  been  able  to  pay,  any  dividends  to  their  stockholders. 

This  is  dull  legal  verbiage,  but  I  want  to  put  it  all  in  be- 
cause it  is  necessary  if  we  are  to  determine  about  the  legal 
control  of  these  corporations. 

"Under  the  terms  of  said  leases/'  says  Mr.  Word  Spinner 
of  the  company's  plea. 

What  leases  ? 

Why  the  leases  of  the  constituent  companies  one  to  an- 
other. Each  of  these  constituent  companies  was  made  up 
of  many  other  smaller  companies,  each  leased  in  turn  to  a 
larger  company,  until  there  was  a  grand  collection  of  leases. 

Thus  the  California  Pacific  mentioned  in  this  plea  was  a 
constituent  company  leased  to  the  Southern  Pacific,  and  the 
California  Pacific  was  itself  an  aggregation  of  smaller  roads 
covered  with  leases.  First,  there  was  the  old  Marysville  & 
Benicia,  organized  under  the  act  of  1851,  which  was  leased 
to  the  San  Francisco  &  Marysville  of  1857,  which  was 
leased  to  the  Sacramento  &  San  Francisco,  which  was 
leased  to  the  Old  California  Pacific,  which  was  leased  to 
some  other  road,  which  was  leased  to  the  present  California 
Pacific. 

The  commissioners  agreed  that  most  of  these  leases  were 
clearly  illegal  and  invalid,  and  that  the  whole  Southern  Pa- 
cific conglomerate  was  an  outlaw  and  pirate. 

Section  20,  Article  XII,  of  the  Constitution  of  California, 
declares  that  no  railroad  company,  nor  other  carrier,  shall 


242  STORIES    OF    THE    GREAT    RAILROADS 

combine  nor  make  any  contract  with  any  other  company  "by 
which  combination  or  contract  the  earnings  of  the  one  doing 
the  carrying  are  to  be  shared  by  the  other  not  doing  the  car- 
rying." 

Which  was,  of  course,  precisely  the  situation  created  by 
most  of  these  leases. 

Law?  Well,  as  I  said  before,  there  is  no  end  of  law. 
Law  on  all  sides  of  us  steadily  violated  by  this  corporation. 
Nothing  but  law.  As,  for  instance,  Section  560  of  the  penal 
code  of  California,  reads  as  follows : 

"Every  director  of  any  stock  corporation  who  concurs  in 
any  vote  or  act  of  the  directors  of  such  corporation,  or  any 
of  them,  by  which  it  is  intended  either" — (And  then  fol- 
lows a  list  of  prohibited  acts,  ending  with  this)  : 

Fifth — To  receive  from  any  other  stock  corporation,  in  exchange 
for  the  shares,  notes,  bonds,  or  other  evidences  of  debt  of  their 
own  corporation,  shares  of  the  capital  stock  of  such  corporation  or 
notes,  bonds  or  other  evidence  of  debt  issued  by  such  corporation, 
is  guilty  of  misdemeanor. 

And  before  a  committee  of  Congress  in  1894,  testifying, 
Mr.  Huntington,  President  of  the  Southern  Pacific,  ex- 
plicitly admitted  that  the  Southern  Pacific  Railway  of  Cali- 
fornia, of  which  he  was  also  President,  had  done  this  iden- 
tical thing  thus  forbidden  by  the  statute,  although  the  law 
that  he  thus  calmly  admitted  he  had  violated  had  never 
been  enforced  upon  him.6 

Why  do  we  have  laws  if  they  can  thus  be  set  aside  at  one 
man's  will  ? 

But  about  these  leases  of  the  subordinate  roads.  The 
Southern  Pacific  argued  that  it  could  not  afford  to  reduce 
the  grain  rate  because  all  its  roads,  except  only  two,  the 
California  Pacific  and  the  Northern,  it  was  operating  at  a 
loss,  and  that  the  small  profits  on  these  were  needed  for  re- 
pairs and  betterments. 

"The  Southern  Pacific  Company  versus  The  Board  of  Railroad 
Commissioners.  Argument  of  former  Judge  Hayne,  p.  214. 


WHAT  THE  LAW  DOES  FOR  US  243 

Then  please  observe. 

A.  All  of  these  roads  were  owned  by  the  same  persons, 
who  were  also  the  owners  of  the  Southern  Pacific,  so  that 
when  they  made  one  of  these  leases,  they  leased  their  own 
property  to  themselves. 

B.  The  rental  so  paid  by  one  road  to  another  became 
a  part  of  the  operating  expense  of  the  larger  road. 

C.  These  rentals  were  repeated  several  times  and  were 
usually  at  excessive  rates. 

D.  The  final  road  that  embodied  all  the  small  roads  had 
to  make  enough  to  pay  all  the  rentals  (to  its  own  owners,  of 
course)  and  a  profit  besides,  and  when  this  profit  was  two 
and  a  half  per  cent,  the  point  was  raised  that  it  was  a  profit 
to  small  to  justify  any  reduction  in  rates.7 

The  process  may  be  illustrated  thus.  Let  us  suppose  one 
of  these  roads  to  be  composed  of  four  subordinate  roads 
successively  leased.  The  first  is  one  hundred  miles  long. 
It  is  leased  for  one  hundred  thousand  dollars  a  year  to  the 
second  company,  which  builds  fifty  miles  and  leases  itself 
and  the  'first  road  to  a  third  company  for  two  hundred 
thousand  dollars  a  year.  The  third  company  adds  fifty  miles 
and  leases  itself  and  its  constituents  to  a  fourth  company 
for  four  hundred  thousand  dollars  a  year.  All  these  leases 
are,  in  reality,  held  by  the  same  persons.  It  is  evident  that, 
in  the  end,  they  have  two  hundred  miles  of  track  on  which 
the  leases  they  hold  are  an  exorbitant  charge  upon  the  oper- 
ation of  the  road — to  be  paid  to  themselves.8 

'"They  own  the  California  Pacific;  they  lease  it  to  themselves 
at  $600,000  a  year;  then  they  add  the  $600,000  to  operating  ex- 
penses and  show  a  deficit  of  $54,000  a  year."  Judge  Hayne's  ar- 
gument, p.  577. 

'The  California  Pacific,  with  a  total  value  of  $1,404,935,  was 
leased  for  $600,000  a  year.  The  annual  rentals  of  some  of  the 
other  lines  was  almost  as  much  as  the  whole  value  of  the  prop- 
erty leased  and  there  was  a  fiction  accepted  by  many  persons  that 
should  have  known  better,  that  above  these  monstrous  rentals 
there  must  still  be  profit  else  the  road  was  operated  at  a  <oss. 


244  STORIES    OF    THE   GREAT   RAILROADS 

In  other  words,  the  lease  is  simply  a  subterfuge  to  con- 
ceal profits  that  the  public  must  furnish. 

As  to  the  railroad's  poverty  again,  it  averred  in  its  bill  of 
complaint,  sworn  to  October  11,  1895,  that  for  the  year 
ending  December  31,  1894,  the  income  account  of  all  its 
lines  in  California  was  as  follows : 

Gross  earnings  .  ...$20,783,157.04 

1  nterest    183,759.12 

Rentals  26,572.23 


Total   receipts $20,993,488.39 

From  which  was  to  be  deducted : 

Operating  expenses,  renewals,  improvements,  et  cetera. $13,320,417.52 

Taxes    659,002.10 

Rentals,  et  cetera 792,471.21 

Interest  on  bonds 5,472,190.24 

Sinking   fund  payments 135,000.00 

Payments  to  the  United  States  for  Central  Pacific 179,910.27 


Surplus  on  lines  in  California $     434,497.05 

This  small  sum,  it  was  declared,  was  required  for  im- 
provements so  that  the  lines  were  really  operated  without  a 
profit. 

Reports  made  by  these  companies  to  the  State  Railroad 
Commission  have  a  somewhat  different  look.  The  form  of 
Statement  required  by  the  State  Commission  sets  forth  the 
total  income  from  all  sources,  and  the  total  deductions  of  all 
kinds,  and  the  remainder  is  called  the  net  income.  Accord- 
ing to  these  statements,  the  business  of  the  Southern  Pacific 
lines  for  the  year  ending  June  30,  1894,  showed  the  fol- 
lowing results : 

Lines  in  California  Net  Incomes 

Southern  Pacific  $2,289,832.65 

California  Pacific   250,549.50 

Northern  Railway    400,058.19 

South   Pacific  Coast.     Leased No  operations 

Northern   California.     Leased No  operations 

Total    $2,940,440.34 

Central  Pacific  in  and  out  of  the  state $1,377,720.80 


Total  Net  Income $4,318,161.14 


WHAT  THE  LAW  DOES  FOR  US  245 

How  this  coheres  with  the  railroad  company's  statement 
in  its  bill  I  can  not  undertake  to  say.  As  to  the  matter  of 
dividends,  of  which  the  company  averred  there  had  been 
none,  the  commissioners  swore  that  on  the  Central  Pacific 
dividends  had  been  paid  in  1894  and  1895  and  had  been 
kept  secret.9 

To  prove  its  poverty,  the  company  filed  a  schedule  of  the 
total  indebtedness  and  the  interest  thereon ;  also  of  the  capi- 
tal stock  of  each  company ;  and  alleged  that  the  actual  value 
of  the  roads  exceeded  the  amount  of  the  stocks  and  bonds. 

Some  extremely  interesting  developments  resulted.  The 
law  of  California  requires  assessments  to  be  made  on  the 
full  cash  value  of  property.  On  June  6,  1895,  four  months 
before  the.  beginning  of  this  suit,  Mr.  A.  N.  Towne,  General 
Manager  of  all  the  Southern  Pacific  lines,  filed  with  the 
State  Board  of  Equalization  (the  highest  taxing  body) 
sworn  statements  in  which  he  declared  the  full  cash  value 
of  all  the  franchises,  railways,  roadbeds,  rails,  and  rolling 
stock  of  each  of  the  Southern  Pacific  lines  in  California. 
This  covered  all  of  the  company's  property  except  such  as 
was  assessed  by  the  various  county  assessors.  By  adding 
the  amounts  sworn  to  by  Mr.  Towne,  and  the  amounts  in 
the  statements  to  the  county  assessors,  the  actual  cash  value 
of  all  the  property  of  all  the  companies  (on  their  own  state- 
ments), including  their  state  franchises  and  all  else,  was 
easily  ascertained.  This,  put  by  the  side  of  the  company's 
statements  in  the  bill,  made  a  startling  showing.  I  think  we 
had  better  exhibit  it  all  together  as  thus : 


"These  were  the  dividends  promised  to  Sir  Rivers  Wilson  after 
he  had  investigated  the  Central  Pacific  in  behalf  of  the  unfor- 
tunate English  stockholders,  as  related  in  a  previous  chapter. 


246 


STORIES    OF   THE   GREAT   RAILROADS 


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WHAT  THE  LAW  DOES  FOR  US  247 

On  all  this  huge  volume  of  water,  the  public  was  required 
to  pay  the  rates  that  furnished  the  interest,  and  the  company 
could  not  afford  to  make  a  reduction  of  eight  per  cent  in  the 
grain  rates  that  were  throttling  the  farmer. 

How  much  of  actual  annual  reduction  in  income  would  be 
produced  by  this  reduction?  How  much  would  the  com- 
pany lose  if  it  allowed  the  new  schedule  to  go  into  effect? 
At  the  most— $100,000  a  year. 

Let's  look  into  that. 

One  hundred  thousand  dollars  a  year.  At  five  per  cent, 
the  annual  interest  on  the  water  on  the  capitalization  of  only 
one  line,  the  South  Pacific  Coast,  would  be  more  than  five 
times  this  amount.  The  annual  interest  on  the  water  in  the 
capitalization  of  the  California  Pacific  alone  would  pay  the 
grain  rate  reduction  more  than  six  times.  It  was  to  support 
this  fictitious  capitalization  that  the  grain  rates  must  be  kept 
up  and  the  farmers  must  pay  and  the  bread  eaters  must  pay 
and  all  the  world  must  pay  for  this  gross  and  swollen 
capitalization,  $10,000,000  in  one  line,  and  $80,000,000  in 
another,  and  $19,000,000  in  another,  all  demanding  interest 
on  the  bonds  and  dividends  on  the  stocks. 

And  these  bonds  and  stocks  created  for  the  profit  of  the 
owners  of  the  road,  neatly  concealed  by  the  leases  and  other 
devices,  represented  in  the  main  nothing  but  the  greed 
of  the  owners  and  the  fraud  of  their  methods.  This  was 
why  the  freight  rates  were  high,  the  farmers  were  poor,  and 
the  cost  of  living  increased. 

In  that  chain  of  cause  and  effect,  there  was  not  a  flaw. 

Five  per  cent  on  the  $19,357,458  of  fictitious  capitaliza- 
tion in  the  Northern  Railway  is  $967,872.90;  five  per  cent 
on  the  actual  value  of  the  Northern  Railway  is  $172,277.10. 
Under  the  existing  conditions,  the  Northern  Railway  must 
earn  $968,000  a  year;  if  it  were  capitalized  for  its  real 
value,  it  need  earn  only  $173,000,  and  it  could  reduce  its 
grain  rates  and  all  other  rates  much  more  than  eight  per 


248  STORIES    OF    THE    GREAT    RAILROADS 

cent  and  still  make  its  dividends.  What  the  people  of 
California  and  the  people  elsewhere  were  paying  for  was 
not  a  reasonable  profit  on  an  investment,  but  an  unreason- 
able profit  on  a  scheme  of  fraud ;  and  as  a  matter  of  fact 
the  only  confiscation  involved  in  the  proposed  reduction  was 
the  confiscation  of  a  piece  of  the  apparatus  of  a  gigantic 
shell  game. 

Take  some  of  this  capitalization  on  which  the  railroad 
company  demanded  "a  reasonable  profit,"  and  see  its  sub- 
stance. 

Into  that  capitalization  was  charged,  for  instance,  the  $2,- 
840,00010  that  the  Central  Pacific  paid  to  the  Union  Pacific 
for  the  overlapping  lines  when  the  two  roads  were  engaged 
in  their  insane  race  for  mileage.  Twenty-five  years  had 
passed  since  that  strange  exhibition  of  frenzied  competition. 
On  this  $2,840,000  at  six  per  cent  for  twenty-five  years,  the 
interest  would  be  $4,260,000,  making  with  the  principal,  $7,- 
100,000."  On  this  again  the  annual  interest  is  $426,000, 
and  the  commission  asked  for  only  $100,000  a  year  reduc- 
tion in  freight  rates. 

In  those  early  days  of  the  Central  Pacific,  there  was  spent 
at  Washington  and  Sacramento  $6,532,329  for  corruption 
disguised  as  "legal  expenses,"  and  this  went  into  the  capi- 
talization on  which  the  farmers  must  pay  and  the  bread  eat- 
ers must  pay  and  all  the  world  must  pay.  At  six  per  cent 
interest  for  twenty-five  years  this  would  amount  to  $9,798,- 
493.50.  If  that  sum  were  applied  to  reducing  the  debt  of 
the  company,  the  annual  saving  in  interest  would  be  $587,- 


10  Pacific  Railroad  Commission  Report,  p.  3039. 

11  Mr.  W.  F.  Herrin,  chief  counsel  for  the  railroad,  said  in  his 
argument,  at  p.  112:     "The  money  expended  by  these  people  legi- 
timately and  honestly  for  the  speedy  construction  of  this  road  can- 
not be  ignored.     There  is  no  equity  on  the  part  of  the  State  of 
California  to  insist  on  striking  out  and  eliminating  a  single  dollar 
that  was   actually  expended   in  the  construction   of  the   road.     It 
was  a  legitimate  investment." 


WHAT  THE  LAW  DOES  FOR  US  249 

909.61 — and  the  commission  asked  for  only  $100,000  from 
the  railroad.12 

Again :  Before  the  Pacific  Railroad  Commission,13  E.  H. 
Miller,  Jr.,  secretary  of  the  company,  gave  a  tabulation 
showing  that  from  1873  to  1884  (when  the  road  was  sold 
to  the  unfortunate  English  investors  and  the  profits  were 
suppressed)  the  dividends  paid  on  Central  Pacific  stock 
amounted  to  $34,308,055.  The  net  earnings  of  the  road 
from  its  completion  to  December  31,  1886,  amounted  to 
$59,276,387.54.  In  the  first  seven  years  ending  with  1876 
the  owners  had  received  $18,000,000  in  dividends  besides 
the  enormous  outside  profits  in  bonds,  land  grants,  construc- 
tion graft,  other  graft,  expense  accounts,  and  leases. 

If  from  1870  to  1876  they  had  been  content  to  take  one- 
third  of  the  net  income  for  their  emoluments,  each  of  them 
would  have  received  $222,000  a  year  for  each  of  those 
years ;  and  if  they  had  applied  the  remaining  two-thirds  of 
the  net  earnings  to  the  reducing  of  the  company's  debt,  they 
would  have  canceled  $12,000,000  of  that  debt. 

On  $12,000,000  for  twenty  years  the  interest  at  six  per 
cent  is  $14,400,000,  which  would  be  the  saving  effected  by 
1896.  The  annual  saving  in  interest  charge  would  be  $720,- 
000  if  for  the  first  seven  years  of  its  existence  the  owners  of 
the  road  had  been  content  with  $222,000  a  year  each  from 
the  net  profits  of  its  operations.  A  careful  man  can  always 
sustain  life  on  $222,000  a  year.  And  then— $720,000  a  year 
of  saved  interest  charges !  All  the  farmers  asked  was  that 
$100,000  a  year  should  be  dropped  from  the  incalculable 
loot. 

Instead  of  being  content  with  $222,000  a  year  for  seven 
years,  the  Congenial  Four  of  Sacramento  grabbed  off  in  that 


12  Mr.  Herrin  in  his  argument  (p.  139)  declared  that  the  opera- 
tion of  the  roads  would  be  discontinued  if  the  reduction  were  en- 
forced. 

18  See  report,  p.  2547. 


250  STORIES    OF    THE    GREAT    RAILROADS 

time  and  divided  $18,000,000  of  profits  (from  the  road's 
operation  alone),  and  then  made  of  their  monstrous  profits 
and  of  the  debt  they  would  not  pay  a  basis  for  charging  ex- 
tortionate rates,  and  next,  in  court,  a  basis  for  defending 
those  rates. 

It  seems  hard  to  go  in  imagination  beyond  this  triumph  of 
impudence. 

Or  to  take  another  illustration:  If  down  to  1884  the 
owners  had  been  content  to  divide  among  themselves  yearly 
one-third  of  the  net  profits  and  to  apply  the  rest  to  pay  the 
road's  just  debts,  they  would  by  that  time  have  shared  $11,- 
436,018  from  the  road's  operations  alone  and  would  have 
saved  for  the  road  to  1884,  $22,877,037.  By  the  time  the 
grain  rate  suit  was  brought  this  would  be  $39,339,901,  on 
which  the  annual  interest  would  have  been  $2,360,394. 
And  all  the  farmers  asked  was  that  $100,000  a  year  should 
be  taken  from  the  load  that  they  bore. 

And  again :  From  the  testimony  taken  before  the  Pacific 
Railroad  Commission  it  appeared  that  the  $62,000,000  of  is- 
sued capital  stock  of  the  Central  Pacific  Railroad  Company 
was  divided  among  the  four  gentlemen  as  a  free  gift,  and 
the  four  gentlemen  paid  not  a  cent  of  it,  and  that  this  $62,- 
000,000  was  part  of  the  capitalization  on  which  interest 
must  be  paid  by  means  of  charges  levied  upon  the  public.14 

And  it  appeared  that  all  the  bonds  fraudulently  taken 
from  the  government  at  the  mountain  rate,  $48,000  a  mile 
when  the  actual  construction  was  on  level  ground,  all  these 
were  in  the  account  and  must  be  paid  for  by  charges  levied 
upon  the  public. 

And  it  appeared  that  all  the  bonds  fraudulently  taken 
from  the  government  at  the  foothill  rate,  $32,00015  a  mile, 
when  the  actual  construction  was  on  level  ground,  all  these 

"See  pages  2646,  2670,  and  2377,  testimony  of  Leland  Stan- 
ford and  Edward  H.  Miller,  Jr. 

18  Pacific  Railroad  Commission  Report,  p.  3662. 


WHAT  THE  LAW  DOES  FOR  US  251 

\vere  in  the  account  and  must  be  paid  for  by  charges  levied 
upon  the  public. 

And  it  appeared  that  all  the  money  fraudulently  taken  by 
the  Contract  and  Finance  Company  (owned  by  the  same 
owners)  on  excessive  and  extravagant  charges  for  construc- 
tion and  repairs — all  that  was  in  the  capitalization  and  must 
be  paid  for  year  after  year  by  charges  levied  upon  the 
public. 

And  it  appeared  that  the  manipulation  by  which  at  the 
end  of  the  construction  period16  the  Central  Pacific  owed 
the  Contract  and  Finance  $3,500,000  and  took  for  that  debt 
the  Central  Pacific's  notes  for  $5,700,000  and  subsequently 
received  in  payment  for  these  notes  $7,000,000  of  land  grant 
bonds,  that  all  this  graft  also  was  in  the  capitalization  and 
must  be  paid  for  by  the  charges  levied  upon  the  public.17 

And  it  appeared  that  the  grafting  contract18  by  which  the 
Contract  and  Finance  undertook  to  make  repairs  on  the 
Central  Pacific,  and  furnish  its  supplies  and  thereby  raked 
off  $2,000,000  a  year  extra  profits— that  all  this  was  in  the 
capitalization  and  must  be  paid  for  year  after  year  by 
charges  levied  upon  the  public. 

And  it  appeared  that  all  the  graft  secured  under  the 
aliases  of  the  Western  Development  Company  and  the  Pa- 
cific Improvement  Company,  all  the  excessive  bond  issues, 
fraudulent  construction  charges,  and  magnified  costs,  all 
these  were  included  in  the  capitalization  and  must  be  paid 
for  year  after  year  by  charges  levied  upon  the  public. 

And  it  appeared  that  when  the  Western  Development 
Company  and  the  Pacific  Improvement  Company  raided  the 
sinking  fund  of  the  Central  Pacific  Company,10  that  here 


18  Ibid.,  p.  2682,  testimony  of  W.  E.  Brown. 
"Judge  Hayne's  argument,  p.   509. 

18  Pacific    Railroad    Commission    Report,    p.    3227,    testimony    of 
Lewis  M.  Clements. 

19  Ibid.,    testimony    of    C.    P.    Huntington,    p.    32;    testimony    of 
Leland  Stanford,  p.  2665.    In  the  present  case,  Judge  Hayne's  argu- 
ment at  p.  512. 


252  STORIES    OF    THE    GREAT    RAILROADS 

were  items  of  cost  that  went  into  the  capitalization  and  must 
be  paid  for  year  after  year  through  charges  levied  upon  the 
public. 

And  it  appeared  that  when  suits  were  brought  that 
threatened  in  a  painful  way  the  reputations  of  the  gentle- 
men involved  in  these  operations  and  they  bought  back  at  400 
and  500  and  1,700  the  stock  they  quoted  at  80,  these  ex- 
penditures also  went  into  the  capitalization.  And  when  the 
directors  of  the  company  hired  writers,  newspapers,  and 
magazines  to  praise  them  and  their  work,  or  to  favor  legis- 
lation in  behalf  of  the  Central  Pacific,  these  expenditures 
also  went  into  the  capitalization. 

And  it  appeared  that  the  real  purpose  of  the  Contract 
and  Finance  Company  and  the  Western  Development  Com- 
pany, and  the  Pacific  Improvement  Company,  and  all  the 
other  aliases  and  disguises  of  these  gentlemen  was  to  effect 
exactly  this  result,  to  transform  the  expenditure  into  a  fixed 
charge  upon  the  publicf  that  should  endure  for  the  profit  of 
the  four  gentlemen ;  and  that  all  these  charges  could  be  paid 
only  in  transportation  rates;  and  that  because  of  all  these 
accumulated  charges  and'  piled-up  accretions  of  fraud,  the 
grain  rates  must  be  exacted  and  the  farmers  must  pay  and 
the  bread  eaters  must  pay  and  all  the  world  must  pay. 

And  it  appeared  that  there  was  no  end  to  these  charges. 
That  whenever  the  great  power  that  gripped  and  held  in  its 
fist  the  State  of  California  extended  in  any  way  its  opera- 
tions or  acquired  additional  lines  or  bought  a  steamship  or 
built  a  branch  or  spent  money  for  legislation  or  made  an 
improvement  or  paid  a  rebate  or  made  an  illegal  lease  or 
straightened  its  corkscrew  track,  it  piled  up  more  capitali- 
zation, which  meant  more  interest  and  dividends  to  be  met, 
which  meant  more  charges  to  be  paid  by  the  public. 

And  it  appeared  that  when  the  Central  Pacific  defrauded 
the  nation  by  building  a  crooked  road,  the  public  paid 
charges  on  the  crookedness ;  and  when  these  crooked  places 


WHAT  THE  LAW  DOES  FOR  US  253 

were  made  straight  the  public  paid  charges  for  making  them 
straight.  Whatever  the  railroad  company  did  produced 
more  capitalization,  and  all  the  capitalization  produced  in- 
terest and  dividends  to  be  met,  and  all  the  interest  and  divi- 
dends meant  charges  levied  upon  the  public.  And  at  the 
other  end  of  this  infallible  mill  stood  the  owners  issuing  the 
excessive  securities,  and  adding  the  proceeds  to  their  huge 
hoards. 

Many  of  these  matters  were  set  forth  with  great  force 
and  skill  by  the  attorneys  for  the  railroad  commission. 
The  railroad  company,  by  its  learned  counsel,  excepted  to 
certain  features  of  the  commissioners'  answer,  and  by  order 
of  the  court  they  were  stricken  out.  One  of  the  excised 
sections  contained  some  of  the  extraordinary  revelations  of 
the  tax  statement  before  referred  to.  In  another  place, 
Paragraph  IX  of  the  commissioners'  answer,  occurs  this 
significant  passage : 

That  it  is  notoriously  true  that  for  many  years  last  past  the 
complainant  has  expended  large  sums  of  money  in  the  employment 
of  politicians  and  others  to  improperly  influence  various  branches 
of  the  Federal  and  State  Government  and  to  obtain  for  themselves 
[itself]  advantages  to  which  it  was  not  entitled;  and  to  induce 
action  on  the  part  of  various  branches  of  the  public  service  for 
the  sake  of  its  own  private  advancement  and  for  that  of  its 
officers,  and  that  a  large  part  of  the  sums  claimed  by  it  as  operating 
expenses  are  for  such  unlawful  expenditures. 

From  this  the  court  ordered  to  be  stricken  out  the  words 
that  "it  is  notoriously  true." 

Judge  McKenna's  decision  was  filed  November  30,  1896. 
In  his  accompanying  opinion  he  confined  himself  chiefly  to 
the  constitutional  aspects  of  the  case  and  to  precedent  and 
previous  decisions.  He  found  that  for  the  year  1894  the 
Pacific  System  of  the  Southern  Pacific  had  been  operated  at 
a  loss  of  $276,262.70,  that  the  company  could  not  afford  to 
make  the  reduction  of  rates  ordered  by  the  commissioners, 
and  that  the  reduction  would  be  such  confiscation  of  prop- 


254  STORIES  OF  THE  GREAT  RAILROADS 

erty  as  was  prohibited  by  the  Constitution  of  the  United 
States.  The  clause  of  the  California  Constitution  uphold- 
ing rates  to  be  promulgated  by  the  commissioners  he  de- 
clared to  be  null  and  void20  for  similar  reasons,  and  he 
therefore  continued  the  injunction  and  knocked  out  the 
proposed  reduction. 

In  this  view  Judge  McKenna  was  in  accord  with  the 
decisions  of  the  Supreme  and  other  courts,  for  the  fact 
seems  to  be  that  under  the  Constitution  and  the  system  of 
business  that  we  have  adopted,  no  other  decision  is  possible. 
Capital  is  capital;  capital  is  entitled  to  just  and  reasonable 
profits ;  courts  cannot  inquire  minutely  as  to  the  methods  by 
which  capitalization  is  piled  up;  and  once  having  saddled 
ourselves  with  this  burden,  we  must  continue  to  bear  it  so 
long  as  the  securities  exist. 

It  only  remains  to  say  that  in  1898  a  new  Board  of  Rail- 
road Commissioners  was  elected ;  that  on  April  24, 1899,  this 
new  board  rescinded  the  grain  reduction  resolution  enjoined 
by  Judge  McKenna ;  and  on  May  19th  the  railroad  company 
graciously  consented  that  the  case  be  dismissed.  Which 
ended  the  last  attempt  of  the  grain  growers  to  utilize  Regu- 
lation's artful  aid  in  their  behalf.  They  submitted  to  their 
fate,  and  after  a  time  most  of  the  wheat  fields  were  put  to 
other  purposes. 

But  if  we  really  desire  to  learn  just  why  the  cost  of  living 
has  increased  so  heavily  upon  us,  and  just  why  it  threatens 
to  become,  before  long,  an  insupportable  condition,  our  in- 
vestigation need  go  no  further  than  this. 

The  history  of  the  Southern  Pacific  is  not  very  different 
from  the  history  of  other  railroads  in  the  United  States. 

Who  pays  the  vast  interest  charges  on  the  nine  billion  dol- 
lars of  fictitious  capitalisation  that  these  railroads  have 
piled  up? 


"The   Southern   Pacific   Company  versus   The   Board  of   Rail- 
road Commissioners.     Judge  McKenna's  decision,  p.  2. 


CHAPTER  XL 

THE  STORY  OF  THE  HARBOR  FIGHT. 

"The  railroads  of  today  ought  not  to  be  judged  by  the 
past." 

So  say  the  railroad  attorneys,  presidents,  and  champions, 
sitting  pleasantly  at  meat.  So  dutifully  echoes  that  part  of 
the  periodical  press  owned  or  controlled  by  the  railroad  in- 
terests. 

I  doubt  not  all  of  us  would  be  glad  to  accept  and  to  fol- 
low the  injunction  if  only  we  could;  but  to  separate  the  rail- 
road of  today  from  its  past  is  like  separating  the  living  tree 
from  its  root. 

The  railroad  company  of  today  is  an  accretion  of  railroad 
companies  of  the  past ;  the  railroad  management  of  today  is 
an  inheritance  from  the  railroad  management  of  the  past; 
the  railroad  capitalization  of  today  has  been  built  upon 
years  of  devious  policy;  the  railroad  rates  of  today  reflect 
forty  years  of  scheming  and  looting. 

If  the  railroad  companies  would  cease  to  operate  their 
political  departments  in  the  manner  of  1878  and  1884;  if 
they  would  cease  to  build  fictitious  capital  on  the  fictitious 
capital  of  previous  years ;  if  they  could  avoid  as  a  basis  of 
rates  the  necessity  of  getting  interest  and  dividends  on  this 
fictitious  capital,  we  could  possibly  afford  to  forget  the  past 
and  its  records. 

We  must  look  back  to  the  past  because  we  are  paying  for 
the  past.  Three  times  a  day  the  past  comes  to  our  tables 
and  collects  its  toll. 

The  manner  of  this  collection  we  shall  now,  if  you  please, 
proceed  to  see,  and  also  to  see  how  utterly  futile  and  absurd 

255 


256  STORIES    OF    THE    GREAT    RAILROADS 

are,  and  must  be,  all  attempts  to  deal  with  the  American 
railroad  problem  by  doctoring  symptoms  with  legal  reme- 
dies, even  when  these  are  most  justly  grounded  and  ably  en- 
forced. 

You  remember,  no  doubt,  the  $27,500,000  of  subsidy 
bonds  that  the  United  States  government  issued  and  be- 
stowed upon  Messrs.  Stanford,  Huntington,  Hopkins,  and 
Crocker,  to  facilitate  the  building  of  the  Central  Pacific. 

These  bonds  were  to  fall  due  thirty  years  after  the  com- 
pletion of  the  road. 

The  road  was  completed  in  1869-70.  The  bonds  became 
due  in  1900. 

Originally,  the  government  stipulated  that  the  railroad 
company  should  pay  the  semi-annual  interest  on  these 
bonds,  and  the  principal  when  due. 

The  company  refused  to  pay  the  semi-annual  interest  and 
got  from  the  Supreme  Court  a  decision  that  it  need  not  pay 
this  interest  until  it  paid  the  principal.  This  obliged  the 
United  States  to  advance  the  semi-annual  interest  from  the 
treasury,  which  amount  was  charged  against  the  company. 

In  1887  the  Pacific  Railroad  Commission  was  appointed 
to  investigate  the  condition  of  the  company  and  discover 
what  use  it  had  made  of  its  resources  and  income,  a  reason- 
able inquiry  in  view  of  its  repeated  statements  that  it  was 
too  poor  to  pay  the  interest  it  owed,  and  would  be  too  poor 
to  pay  the  principal. 

After  listening  to  much  astounding  testimony  of  a  nature 
extremely  damaging  to  the  company,  the  commission  made 
two  reports.  The  majority  dealt  lightly  with  the  offenses 
that  had  been  revealed.  Governor  Pattison,  the  minority 
member,  returned  a  stinging  indictment  of  Messrs.  Stan- 
ford, Huntington,  Hopkins,  and  Crocker,  and  urged  the  gov- 
ernment to  forfeit  the  company's  charter  for  fraud  and  dis- 
honesty. 

Nothing  was  done  on  either  report. 


THE   STORY   OF   THE    HARBOR   FIGHT  257 

In  1896,  the  time  for  payment  being  close  at  hand,  the 
debt  to  the  government  was  apparently  more  than  $60,000,- 
000,  and  the  company's  attorneys  and  representatives  made 
no  secret  of  its  intention  to  default  on  this  debt. 

Public  sentiment  demanded  that  some  arrangement  should 
be  made.  Mr.  Huntington  was  still  hovering  about  Con- 
gress with  his  agents  and  lobbyists.1  He  prepared  a  bill 
that  provided  for  the  refunding  of  the  debt  into  bonds  bear- 
ing two  per  cent  interest  and  payable  at  a  period  estimated 
at  eighty  years  from  date. 

This  bill  was  slated  for  passage  by  the  Republican  ma- 
chine to  which  Mr.  Huntington  had  always  contributed 
liberally. 

Everybody  knew  that  the  bill  was  to  be  jammed  through 
and  Mr.  Huntington  was  greatly  pleased  with  the  prospect. 

He  had  reason  to  be  pleased.  The  bill  settled  all  differ- 
ences with  the  government,  and  put  off  the  day  of  payment 
so  far  that  it  probably  would  never  come. 

Mr.  Huntington's  pleasure  was  of  short  life.  It  was 
presently  upset  by  two  men. 

At  the  request  of  Mr.  William  Randolph  Hearst,  Mr. 
Ambrose  Bierce  went  to  Washington,  and  every  day  for 
one  year  he  wrote  an  article  exposing  the  rotten  features 
of  Mr.  Huntington's  bill. 

These  articles  were  extraordinary  examples  of  invective 
and  bitter  sarcasm.  They  were  addressed  to  the  dishonest 
nature  of  the  bill  and  to  the  real  reasons  why  the  machine 
had  slated  it  for  passage.  When  Mr.  Bierce  began  his  cam- 
paign, few  persons  imagined  that  the  bill  could  be  stopped. 


*The  Washington  correspondence  of  the  Chicago^  Evening  Post, 
April  22,  1896,  contains  this  passage :  'The  most  pitiable  and  at  the 
same  time  the  most  disgusting  spectacle  that  now  offends  the 
national  capital  is  the  Huntington  lobby.  The  list  of  paid  lobbyists 
and  attorneys  now  numbers  twenty-eight,  and  their  brazen  at- 
tempts to  influence  Congress  to  pass  the  Pacific  Railroad  Re- 
funding Bill  have  become  the  disgrace  of  the  session." 


258  STORIES    OF    THE    GREAT    RAILROADS 

After  a  time  the  skill  and  steady  persistence  of  the  attack 
began  to  draw  wide  attention.  With  six  months  of  inces- 
sant firing,  Mr.  Bierce  had  the  railroad  forces  frightened 
and  wavering;  and  before  the  end  of  the  year,  he  had  them 
whipped.  The  bill  was  withdrawn  and  killed,  and  in  1898 
Congress  adopted  an  amendment  to  the  general  deficiency 
bill,  providing  for  the  collection  of  the  Pacific  Railroad  sub- 
sidy debts,  principal  and  interest. 

This  may  be  held  to  be  as  wonderful  a  victory  as  was  ever 
achieved  by  one  man's  pen,  and,  also,  one  of  the  most  re- 
markable tributes  to  the  power  of  persistent  publicity. 
What  it  meant  for  California  may  be  judged  from  the  fact 
that  when  news  was  received  of  the  death  of  Mr.  Hunting- 
ton's  bill  the  governor  proclaimed  a  public  holiday,  and  in 
the  name  of  the  state  sent  a  telegram  of  thanks  to  Mr. 
Hearst. 

But  it  was  a  victory  destined  to  have  far  more  memorable 
results  than  these.  At  once  the  railroad  company  aban- 
doned all  hope  of  cheating  the  government,  and  resorted  to 
a  vast  and  difficult  feat  of  financiering  that  it  might  provide 
for  the  payment  of  the  accumulated  debt.  For  months  the 
eyes  of  the  financial  world  were  fixed  wonderingly  upon 
this  slack  wire  adventure,  which  was  regarded  in  some  quar- 
ters as  fraught  with  peril,  in  others  as  "a  clever  and  in- 
genious contrivance,"  and  on  all  sides  as  a  new  chapter  in 
high  finance. 

The  substance  of  it  was  this : 

The  amount  due  to  the  government,  less  deductions,  was 
$58,800,000.  .  For  this  the  company  gave  twenty  notes  of 
equal  amounts,  payable  semi-annually  over  a  period  of  ten 
years,  bearing  interest  at  three  per  cent  and  secured  by  an 
equal  amount  of  bonds. 

This  meant,  of  course,  an  increase  of  capital.  The  ac- 
crued interest,  $30,700,000,  had  been  due  to  the  government. 
Instead  of  paying  it  to  the  government,  the  Big  Four  had 


THE   STORY   OF   THE    HARBOR   FIGHT  259 

wrongfully  paid  the  money  to  themselves  in  dividends. 
They  now  funded  the  accumulated  debt  for  us  to  pay. 

There  was  next  prepared  a  new  issue  of  Southern  Pacific 
stock  and  a  new  issue  of  four  per  cent  collateral  bonds. 
Next  an  assessment  of  $2  a  share  was  ordered  on  the  old 
Central  Pacific  common. 

But  to  offset  this  assessment,  the  new  collateral  bonds 
were  presented  free  to  the  stockholders  to  the  amount  of 
$16,819,000. 

Then  the  stockholders  received,  share  for  share,  $67,275,- 
500  of  the  new  Southern  Pacific  stock  on  which  six  per  cent 
dividends  were  to  be  paid — a  fine,  dividend-paying  stock  ex- 
change for  a  stock  that  for  years  had  been  inert  and  un- 
profitable. 

Next  a  new  Central  Pacific  Railway  Company  was  organ- 
ized in  Utah  to  succeed  the  old,  and  the  original  part  of  the 
Millionaire  Mill  passed  from  public  view  forever. 

The  $16,819,000  of  collateral  bonds  and  the  $67,275,500 
of  new  stock  made  $84,094,500  of  securities  which  must  be 
provided  for  from  the  earnings.  Nominally,  the  total  in- 
crease in  the  capitalization  was  $47,579,000,  being  the  capi- 
talized interest  on  the  government  debt,  and  the  collateral 
bonds;  but  the  total  paper  capitalization  was  now  $114,794,- 
500,  and  all  of  it  became  interest  or  dividend  bearing, 
whereas  much  of  it  had  previously  been  of  small  value. 

A  total  of  $114,794,500,  on  which  interest  must  be  paid. 

We  are  paying  it. 

Thus: 

Annual  dividends  on  the  stock,  6  per  cent $4,036,530 

Collateral  bonds,  $16,819,000,  at  4  per  cent 672,760 

Capitalized  interest  on  government  subsidy 1,200,000 

Total  annual  charge  on  us $5,909,290 

We  have  been  paying  this  for  thirteen  years.  So  far,  we 
have  paid  upon  this  account  $76,820,770. 


260  STORIES    OF    THE    GREAT    RAILROADS 

Then  this  is  the  way  our  account  stands  to  date : 

Debt  of  the  railroad  to  the  government $58,800,000 

We  have  paid  because  of  the  refunding  of  that  debt 76,820,770 


We  are  out  so  far $18,020,770 

In  thirty  years  we  shall  have  paid  close  upon  $180,000,- 
000,  which  is  three  times  the  amount  of  the  debt,  and  shall 
then  be  losers  to  the  amount  of  $120,000,000. 

It  would  have  been  enormously  cheaper  to  give  Mr.  Hunt- 
ington  a  cancellation  of  the  debt. 

Cheaper  in  freight  rates;  cheaper,  therefore,  in  the  daily 
living  expenses  of  the  people. 

But  since  this  debt  and  the  annual  charges  that  we  must 
pay  on  it  are  directly  and  solely  the  results  of  the  operations 
(before  described)  of  Messrs.  Stanford,  Huntington,  Hop- 
kins, and  Crocker,  and  of  nothing  else,  kindly  observe  the 
impudence  of  the  men  that  urge  us  to  forget  railroad  his- 
tory. 

We  might  very  well  answer  that  we  will  forget  railroad 
history  when  the  railroads  cease  to  make  us  pay  for  that 
history. 

But  the  floating  of  the  gigantic  refunding  scheme  had  an- 
other result  besides  the  levying  of  additional  tribute  upon 
us.  Mr.  Stanford  was  dead,  Mr.  Hopkins  was  dead,  Mr. 
Crocker  v/as  dead.  Mr.  Huntington,  who  had  been  steering 
and  directing  the  new  operations  died  (before  they  were 
completed)  in  August,  1900. 

Some  confusion  followed  in  the  public  mind,  with  many 
stories  of  sales,  purchases,  and  reorganizations.  When  this 
mist  cleared  away,  men  saw  that  the  Great  Millionaire  Mill 
had  passed  into  a  new  ownership. 

For  years  the  many  properties  of  the  original  Big  Four 
of  Sacramento  had  been  undergoing  consolidation.  For  all 
the  millions  upon  millions  of  fictitious  stock  issued  and 
gathered  to  themselves  as  they  had  gone  along,  for  all  the 


THE  STORY  OF   THE   HARBOR  FIGHT  261 

fictitious  capitalization  in  all  the  long  list  of  subsidiary  line.. 
and  branches,  being  company  within  company  until  the 
human  mind  wearied  and  failed  to  follow  the  ramifications 
—for  all  this  there  had  been  issued  stock  in  the  Southern 
Pacific  Company,  of  Kentucky,  the  final  consolidated  con- 
cern. 

Great  blocks  of  this  were  now  acquired  from  the  heirs 
of  the  Big  Four  and  through  the  exigencies  of  the  refund- 
ing operations,  and  when  the  situation  finally  cleared  there 
appeared  as  the  real  owners  of  the  old  Central  Pacific,  the 
Southern  Pacific,  the  unknowable  convolutions  thereof,  the 
Pacific  Mail,  the  Morgan  steamships,  the  Union  Pacific,  the 
whole  bewildering  aggregation  with  all  its  load  of  fictitious 
capital,  buttressed  with  lordly  gifts  from  the  public  domain, 
rich  with  spoils,  incomparably  the  grandest  source  of  riches 
ever  known  in  human  history — of  the  whole,  incalculable 
thing,  the  real  owners  appeared  as  the  colossal  Standard  Oil 
interests,  with  the  late  E.  H.  Harriman  as  their  represen- 
tative. 

In  the  end  it  was  the  Standard  Oil  group  that  had 
financed  the  "clever  and  ingenious"  refunding  deal  and  had 
thereby  seized  the  control  of  the  Mill,  and  it  is  to  the  Stand- 
ard Oil  group  that  we  pay  our  $5,900,000  of  annual  tribute 
to  that  deal,  and  all  the  other  tribute  on  all  the  other  deals 
back  to  the  days  of  the  Contract  and  Finance  Company, 
John  Miller,  and  the  books  at  the  bottom  of  the  river  Seine. 

Is  not  that  sweet? 

Yes,  we  should  love  to  forget  the  past  if  the  past  would 
only  let  us.  But  when,  on  $200,000,000  of  fictitious  stock 
created  by  the  "Contract  and  Finance  Company  and  its  suc- 
cessors, we  furnish  such  dividends  that  the  price  of  that 
stock  goes  up  to  137,  the  manner  in  which  we  are  to  win 
forgetfulness  of  the  past  ought  to  be  very  carefully  ex- 
plained to  us. 


262  STORIES    OF    THE    GREAT    RAILROADS 

So  much  for  the  business  side  of  forgetting.  Suppose  we 
turn  now  to  the  political  side  and  see  how  that  looks. 

We  found  that,  in  the  old  days,  this  company  was  wont  to 
maintain  a  great  and  elaborate  political  machine  covering 
every  corner  of  the  state  and  working  with  perfect  pre- 
cision to  fill  all  offices  with  persons  chosen  by  the  company. 
We  found  that  this  machine  cost  much  money  and  the  cost 
thereof  was  and  is  assessed  upon  us,  who  continue  year 
after  year  to  pay. 

Always  to  pay. 

We  found  that  the  company  divided  the  state  into  dis- 
tricts, each  with  its  boss;  and  the  districts  into  counties, 
each  with  its  boss;  and  that  the  county  bosses  reported  to 
the  district  bosses,  who  reported  to  the  chief  boss,  who  was 
the  company's  chief  counsel  and  attorney  in  San  Fran- 
cisco. 

Then  come  down  to  these  days  of  ours,  if  you  will.  Who 
is  Mr.  Walter  F.  Parker?  He  is  the  Southern  Pacific 
leader  for  the  southern  district  of  California.  And  who 
report  to  him  ?  The  county  bosses  in  that  district.  And  to 
whom  does  Mr.  Parker  report?  To  William  F.  Herrin, 
chief  counsel  of  the  Southern  Pacific  at  San  Francisco. 

Same  old  frame  work,  evidently. 

How  does  the  thing  work  today? 

Like  this: 

In  California  the  governor's  term  of  office  is  four  years. 

A  new  governor  was  to  be  elected  in  1906.  Mr.  James 
N.  Gillett  was  then  a  member  of  Congress  for  California. 
Five  months  before  the  election,  Mr.  E.  H.  Harriman  gave 
a  dinner  in  Washington  to  men  influential  in  politics  and 
business.  At  that  dinner  Mr.  Gillett  was  chosen  to  be  the 
next  governor  of  California,  Mr.  Harriman  announcing  in  a 
few,  well-chosen  words  Gillett's  selection  by  the  railroad 
company. 

To  ratify  this  choice,  the  State  Republican  Convention 
was  called  at  Santa  Cruz.  All  the  railroad  bosses  from 


THE  STORY   OF   THE    HARBOR   FIGHT  263 

great  to  small  had  received  the  necessary  word  about  Mr. 
Harriman's  action,  and  proceeded  at  once  to  secure  Gillett 
delegations  from  the  counties.  In  Los  Angeles  County, 
which  sent  a  large  delegation,  Mr.  Walter  Parker  himself 
directed  operations.  He  sat  on  an  upper  floor  of  the  build- 
ing in  which  the  county  convention  was  held,  and  a  staff  of 
messengers  ran  continually  between  his  desk  and  his  leaders 
on  the  floor.  Not  a  move  was  made  without  his  word;  the 
delegates  were  marionettes;  he  sat  above  them  and  pulled 
the  strings. 

Likewise  in  San  Francisco,  which  had  a  large  delegation, 
Mr.  Herrin  took  personal  charge  and  operated  with  no  less 
success,  although  upon  a  basis  more  primitive.  According 
to  a  confession  of  Mr.  Abe  Ruef,  the  convicted  boodler  of 
San  Francisco,  Mr.  Herrin  paid  him  $14,000  for  the  control 
of  the  delegation. 

Simple,  neat,  effective. 

Of  late  years  California  has  been  growing  more  and  more 
restless  under  the  iron  sway  of  the  Southern  Pacific.  Even 
with  the  active  co-operation  of  Mr.  Ruef,  former  Mayor 
Schmitz,  and  their  gang,  Mr.  Harriman  did  not  find  it  per- 
fectly easy  to  nominate  the  man  he  had  chosen.  Many 
persons,  including  some  long  inured  to  conditions,  resented 
that  Washington  banquet  performance.  They  felt  that  it 
marked  the  limit  of  railroad  arrogance  on  one  side,  and  of 
the  state's  subjugation  on  the  other,  and  they  did  not  like  it. 

Hence  the  Southern  Pacific  managers  at  Santa  Cruz  were 
put  to  rather  unusual  methods  to  fulfill  Mr.  Harriman's 
wishes. 

That  is  to  say,  they  auctioned  the  other  offices  for  Gillett 
support. 

In  this  way.  If  a  man  had  ambition  to  be  a  judge,  and 
they  knew  he  was  all  right  and  sound  on  the  railroad's 
supremacy,  they  said  to  him: 

"How  many  votes  for  Gillett  can  you  swing?" 


264  STORIES    OF    THE    GREAT    RAILROADS 

Perhaps  the  ambitious  one  replied  that  he  could  swing 
fifteen.  They  reported  this  to  his  rival,  started  a  competi- 
tive bidding,  and  the  man  that  undertook  to  deliver  the 
greatest  number  of  Gillett  votes  got  the  place  on  the  ticket. 

Thus  do  we  vindicate  the  purity  of  our  institutions  and 
the  grandeur  of  representative  government. 

Mr.  Gillett  was  nominated.  I  have  on  my  desk  as  I 
write2  a  little  picture  of  a  happy  family  group,  being  in 
fact  a  little  dinner  party  at  Santa  Cruz  just  after  the  nom- 
ination. The  gentlemen  in  the  photograph  have  been  din- 
ing, and  with  pleasure  I  note  that  they  seem  to  have  been 
dining  well.  Gentlemen  of  a  happy  aspect,  well  dressed, 
contented,  and  congenial,  no  doubt;  a  pleasant  occasion. 

That  handsome  gentleman  in  the  center  with  his  hand 
affectionately  on  the  shoulder  of  the  gentleman  seated  be- 
fore him,  is  Mr.  Gillett,  afterward  Governor  of  California, 
and  nominated  to  that  high  place  by  Mr.  Harriman,  as 
aforesaid.  The  gentleman  in  front  of  him  upon  whom  he 
leans  so  trustingly,  is  Mr.  Abe  Ruef,  sometime  boss  and 
boodler  of  San  Francisco,  now  convicted  of  the  dirtiest  of 
political  crimes  and  serving  his  sentence.  Yes,  that  is 
Mr.  Ruef ;  Mr.  Gillett's  hand  is  on  Mr.  Ruef 's  shoulder. 

At  Mr.  Gillett's  left  stands  Mr.  Walter  F.  Parker,  to 
whom  several  times,  and,  we  must  fear,  rather  unpleas- 
antly, we  have  alluded  in  these  chronicles.  Mr.  Parker  is 
a  gentleman  of  the  most  distinguished  consideration.  When 
Mr.  Frank  Flint,  lately  United  States  Senator  from 
California,  was  publicly  congratulated  upon  his  election,  he 
said,  with  touching  simplicity:  "I  owe  it  all  to  Walter 
Parker." 

Still  farther  to  Mr.  Gillett's  left  stands  Judge  F.  H. 
Kerrigan,  quite  at  ease,  with  his  hands  in  his  pockets. 
When  Judge  Kerrigan  was  a  judge  of  the  Superior  Court, 

8  See  page  369. 


THE  STORY  OF  THE    HARBOR  FIGHT  265 

he  decided  the  crucial  Fresno  rate  case  in  the  way  related 
in  a  foregoing  chapter.  He  is  now  a  judge  of  the  Appellate 
Court,  having  found  promotion.  Judge  Bahrs,  who  de- 
cided the  case  the  other  way,  found  no  promotion,  but 
was  retired  to  private  life. 

Just  back  of  Judge  Kerrigan's  left  shoulder  is  Congress- 
man Knowland. 

Next  to  Mr.  Ruef  and  Mr.  Gillett  at  their  right  is  Mr. 
George  Hatton,  a  friend  of  Mr.  Parker  and  of  the  Southern 
Pacific.  Next  to  him  is  Judge  McKinley,  and  at  the  end 
is  Judge  Henshaw,  of  the  Supreme  Court. 

Thus  we  may  see  the  judiciary,  statesmanship,  commerce, 
transportation,  blackmail  and  boodle,  all  pleasantly  com- 
mingled and  meeting  on  equal  terms  under  the  genial  aus- 
pices of  the  Southern  Pacific  Railroad.  Nothing  is  lacking 
to  the  picture  except  in  the  background  the  figure  of  Collis 
Potter  Huntington  in  an  attitude  of  benediction. 

Mr.  Gillett's  name  was,  in  the  cant  phrase,  "submitted  to 
the  voters"  of  California,  who  nominally  elected  him  gov- 
ernor. As  a  matter  of  fact,  there  was  not  much  choice. 
The  railroad  company  played  the  usual  tricks,  stimulated 
the  partisan  frenzy,  befogged  the  issue,  subsidized  editors, 
flooded  the  state  with  its  hired  newspapers,  made  unthink- 
ing people  believe  that  somehow  the  security  of  the  country 
depended  upon  Gillett's  election,  created  the  impression  that 
by  voting  for  Gillett  a  man  was  "supporting  the  President," 
did  some  other  things  not  necessary  to  specify  here — and 
won. 

Not  by  much  margin,  incidentally.  The  number  of  people 
it  can  fool  with  this  kind  of  rot  is  steadily  diminishing. 

From  this  chapter  of  history  we  may  learn  how  foolish 
a  noise  we  make  when  we  talk  about  any  new  basis  of 
judgment  for  one  railroad,  at  least.  This  railroad  is  doing 
in  politics  exactly  the  things  that  it  did  forty-eight  years 


266  STORIES    OF    THE    GREAT    RAILROADS 

ago  and  forty  years  ago  and  twenty  years  ago  and  ten 
years  ago  and  all  times  between. 

Observant  persons  in  California  do  not  need  to  be  told 
this  any  more  than  they  need  to  be  told  their  own  names. 
They  know  it. 

'But  elsewhere  has  grown  up  among  us  a  strange  kind 
of  sentimental  softness  in  regard  to  railroad  rascality,  and 
a  willingness  to  accept  the  gold  bricks  of  repentance  and 
reform  whenever  they  are  offered  by  a  railroad  president 
with  a  smug  face  and  an  indurated  conscience.  These  little 
incidents  may  show  how  much  credence  belongs  to  such 
protestations  when  you  hear  them  urged  in  behalf  of  the 
Southern  Pacific. 

In  California  every  fight  to  purify  conditions,  to  reform 
a  municipality,  to  stop  graft,  to  proceed  in  honesty  and 
decency,  is  a  fight  against  the  Southern  Pacific,  and  that 
is  as  true  of  the  heroic  struggles  of  Mr.  Heney,  in  San 
Francisco  as  of  the  fight  for  better  conditions  in  other 
communities. 

In  Los  Angeles  the  fight  centered  at  first  around  the  con- 
trol of  the  harbor,  and  was  fought  in  the  open,  without 
disguise,  the  citizens  on  one  side  and  the  Southern  Pacific 
on  the  other. 

Los  Angeles  lies  a  little  back  from  the  coast.  Its  natural 
harbor  is  San  Pedro,  familiar  to  all  readers  of  Dana's  im- 
mortal "Two  Years."  San  Pedro  is  south  of  the  city.  The 
Southern  Pacific  owned  the  harbor  of  Santa  Monica,  fif- 
teen miles  north  of  San  Pedro  and  from  the  city  lying  about 
west. 

Neither  harbor  was  (as  it  lay)  in  any  condition  to  ac- 
commodate a  large  deep-sea  traffic ;  both  needed  breakwaters 
and  other  improvements.  Readers  of  Dana  will  recall  his 
vivid  descriptions  of  the  perils  of  his  San  Pedro,  the  road- 
stead open  to  the  terrible  southeasters,  the  sudden  rising 
of  the  gale,  and  the  swift  flight  of  the  vessel  to  sea  until 


THE   STORY   OF   THE    HARBOR   FIGHT  267 

the  storm  should  pass.  This  had  not  much  changed  in  1871 
when  Congress  appropriated  money  to  improve  the  harbor. 
The  work  went  on  for  several  years,  and  as  the  improve- 
ments were  made  the  commerce  of  the  port  increased.  Then 
Los  Angeles  entered  upon  its  period  of  rapid  growth,  and 
the  need  of  a  commodious  and  safe  harbor  was  apparent. 

The  people  of  Los  Angeles  wished  this  to  be  at  San 
Pedro.  At  first  the  railroad  company  seemed  not  to  care. 
Then  its  officers  bought  real  estate  at  Santa  Monica3  and, 
in  1890,  Mr.  Huntington  declared  that  Los  Angeles  must 
have  its  harbor  at  Santa  Monica,  or  not  at  all. 

There  began  now  a  contest  that  lasted  eight  years.  Los 
Angeles  appeared  regularly  before  Congress  asking  for  an 
appropriation  for  San  Pedro ;  Mr.  Huntington,  through  his 
lobbyists  and  Congressmen,  as  regularly  defeated  the  proj- 
ect. All  that  was  needed  at  San  Pedro  now  was  a  break- 
water, which  could  be  built  at  no  great  expense.  Mr. 
Huntington  invariably  knocked  out  the  breakwater. 

Meantime,  army  engineers  had  examined  both  harbors 
and  reported  convincingly  in  favor  of  San  Pedro  and 
against  Santa  Monica.  Mr.  Huntington  was  stronger  than 
the  engineers.  In  the  face  of  their  report,  he  had  a  bill 
introduced  and  favorably  considered  to  appropriate  $3,000,- 
000  for  his  Santa  Monica  scheme.  He  could  not  quite  get 
this  passed,  but  he  could  always  defeat  San  Pedro. 

In  1894  he  came  to  Los  Angeles,  strode  into  the  rooms 
of  the  Chamber  of  Commerce,  and  requested  a  conference. 
Members  were  summoned  by  telephone.  When  they  ar- 
rived he  told  them  they  were  making  "a  big  mistake"  to 
support  San  Pedro,  that  it  was  not  to  his  advantage  to 
have  San  Pedro  selected,  and,  anyway,  they  could  never  get 
Congress  to  give  money  for  their  scheme.  The  announce- 
ments seemed  to  make  little  impression  on  his  hearers.  Mr. 
Huntington  said: 

1  "The  Free  Harbor  Contest,"  by  Charles  Dwight  Willard,  p.  80. 


268  STORIES    OF    THE    GREAT    RAILROADS 

"Well,  I  don't  know  for  sure  that  I  can  get  this  money 
for  Santa  Monica;  I  think  I  can.  But — ,"  bringing 
down  his  first  with  an  explosive  slam,  "I  know  damned 
well  that  you  shall  never  get  a  cent  for  that  other  place."* 

The  voice  of  ultimate  government,  you  see.  He  knew. 
Not  less  interesting  than  the  decree  of  this  ruler  is  the  fact 
that  his  listeners,  the  smug  business  men  and  reformers  of 
Los  Angeles,  agreed  not  to  let  it  be  known  to  the  pop- 
ulace. It  might  "increase  the  growing  bitterness."  When 
you  are  fighting  for  your  life  against  a  power  like  this 
there  must  be  no  bitterness  on  your  side. 

The  issue  came  soon  after  before  the  Senate  Commerce 
Committee.  Mr.  Huntington  was  there,  demanding  $4,000,- 
000  for  his  Santa  Monica.  The  Los  Angeles  people  asked 
for  a  small  sum  for  San  Pedro. 

The  St.  Louis  Globe-Democrat's  Washington  correspon- 
dence of  those  days  contains  this  paragraph : 

The  harbor  contest  at  Los  Angeles  waxes  warmer.  C.  P. 
Huntington  was  seen  going  the  rounds  of  the  hotels  to-day  and, 
although  it  was  Sunday,  he  made  no  halt  in  buttonholing  senators. 
Four  days  ago  there  was  a  decided  majority  in  the  Commerce 
Committee  in  favor  of  following  the  wishes  of  the  two  senators 
from  California,5  but  since  the  arrival  of  Mr.  Huntington  at  the 
capital  it  is  now  a  matter  of  great  doubt  where  the  majority  will 
be  found.  There  is  serious  speculation  in  the  minds  of  many 
people  as  to  the  means  Mr.  Huntington  may  have  used  to  bring 
about  this  change. 

Possibly  the  speculation  would  have  gained  additional 
zest  from  a  perusal  of  Mr.  Huntington's  letters  to  "Friend 
Colton."6 

Mr.  John  P.  Jones  was  a  member  of  the  Senate  Com- 
merce Committee  and  an  ardent  champion  of  Santa  Mon- 

4  "The  Free  Harbor  Contest,"  p.  107. 

"One  of  these,  Stephen  M.  White,  a  Democrat,  was  a  Los  An- 
geles man  and  a  champion  of  San  Pedro. 

"See  the  letters  of  Huntington  to  Colton,  foregoing. 


THE   STORY   OF   THE    HARBOR   FIGHT  269 

ica.  I  believe  we  have  previously  encountered  the  name 
of  John  P.  Jones.7 

The  committee  voted  to  postpone  a  decision  about  the 
two  bills  until  it  could  go  to  Los  Angeles  and  inspect  both 
harbors.  This  put  the  matter  over  for  two  years,  or  until 
1896. 

Meanwhile,  the  people  of  Los  Angeles  had  formed  a 
Free  Harbor  League  to  fight  for  San  Pedro.  The  long 
delay  wore  out  the  enthusiasm.  In  1896  somebody  sug- 
gested that  probably  Mr.  Huntington  was  no  less  tired  of 
fighting.  A  friend  undertook  to  sound  him  and  returned 
with  the  statement  that  Mr.  Huntington  willingly  agreed 
to  a  cessation  of  hostilities  for  the  rest  of  that  session  of 
Congress,  neither  side  to  make  a  move. 

The  next  thing  the  people  of  Los  Angeles  knew  Mr. 
Binger  Hermann,  then  a  Representative  from  Oregon  and 
a  member  of  the  House  Commerce  Committee,  and  since 
with  other  claims  to  fame,  had  put  into  the  River  and  Har- 
bor bill  two  items,  one  of  $392,000  for  work  on  the  inner 
harbor  of  San  Pedro,  and  one  of  $3,098,000  to  complete 
Santa  Monica. 

At  this  the  people  of  Los  Angeles  arose  in  wrath,  and  m 
the  clamor  of  their  protest  the  committee  knocked  out  both 
items. 

By  "the  people  of  Los  Angeles"  I  mean,  and  have  meant, 
the  majority.  As  soon  as  the  railroad  company  announced 
its  choice  of  Santa  Monica,  there  had  sprung  up  at  once 
two  factions  in  the  city,  the  same  factions  that  ever  since 
have  continued  to  struggle  for  itj  possession.  On  one  side 
were  the  railroad's  attorneys  friends,  and  admirers  and, 

'About  this  time  the  New  York  World  took  the  trouble  to  i:n  1 
out  who  owned  Santa  Monica.  It  discovered  that  the  property  ad- 
joining the  exclusive  water  front  owned  by  the  Southern  Pacific 
was  divided  in  eight  holdings.  Of  this,  John  P.  Jones  and  A.  B. 
de  Baker  held  three.  All  the  rest  of  the^  land  was  in  the  name  of 
Frank  H.  Davis,  representing  C  P.  Huntington. 


270  STORIES    OF    THE    GREAT    RAILROADS 

of  course,  the  wealthy  and  respectable  element,  all  lined  up 
with  Mr.  Huntington  for  Santa  Monica.  On  the  other, 
the  masses  of  the  people,  the  labor  unions,  merchants  with- 
out social  aspirations,  and  others  of  that  order,  fought  for 
San  Pedro. 

Santa  Monica  had  the  advantage  in  the  influence  of  its 
supporters;  San  Pedro  had  the  numbers. 

Mass  meetings  were  held  by  each  side  and  resolutions 
passed,  the  San  Pedro  people  meeting  out  of  doors  and 
the  Santa  Monicans  in  Illinois  Hall.  Both  parties  circu- 
lated petitions  to  Congress.  Presently,  the  cause  of  Mr. 
Huntington,  his  friends,  lackeys,  and  social  peers,  was 
deeply  hurt  by  the  discovery  that  the  names  on  their  peti- 
tion were  largely  fraudulant.  Thereafter,  San  Pedro  had 
all  the  advantage. 

The  issue  came  April  16,  1896,  before  the  Senate  Com- 
mittee on  Commerce,  when  delegations  representing  both 
sides  were  heard.8  Mr.  Huntington  had  a  majority  of  the 
Committee.  Nine9  voted  to  restore  to  the  River  and  Harbor 
bill  the  $3,098,000  appropriation  for  Santa  Monica;  six 
opposed  it. 

When  the  bill  reached  the  Senate  floor,  Senator  White 
forced  through  an  amendment  that  a  board  of  five  engi- 
neers should  determine  whether  the  $3,098,000  should  be 
expended  at  Santa  Monica  or  at  San  Pedro.  In  conference 
Mr.  Binger  Hermann  bitterly  fought  this  provision,  which 
was  hung  up  for  many  days,  but  Congressman  James  G. 
Maguire,  of  San  Francisco,  threatened  that  unless  the  item 
were  allowed  to  stand,  he  would  expose  on  the  floor  of  the 


8  Among  the  champions  of  Santa  Monica  on  this  occasion  was 
former  Senator  Cornelius  Cole,  whose  name  we  encountered  in  the 
Colton  letters. 

'Frye,  of  Maine;  Gorman,  of  Maryland;  Elkins,  of  West  Vir- 
ginia; Jones,  of  Nevada;  Quay,  of  Pennsylvania;  Murphy,  of  New 
York;  McMillan,  of  Michigan;  McBride,  of  Oregon;  Squire,  of 
Washington. 


THE   STORY   OF   THE    HARBOR    FIGHT  271 

House  the  whole  Huntington  game,  and  the  thing  went 
through. 

Great  rejoicing  in  Los  Angeles. 

The  board  of  five  engineers  decided  in  favor  of  San 
Pedro. 

More  rejoicing  in  Los  Angeles. 

But  here  came  strange  developments. 

The  matter  now  rested  in  the  hands  of  General  Russell  A. 
Alger,  Secretary  of  War. 

General  Alger  was  an  old  friend  and  business  associate 
of  Mr.  Huntington,  who  had  given  heavily  to  the  Repub- 
lican campaign  fund. 

General  Alger's  first  achievement  was  to  hold  up  the  ap- 
propriation nine  months,  so  that  the  Board  of  Engineers 
could  not  begin  its  work. 

The  Board's  report  .was  made  in  March,  1897,  and  work 
should  have  been  begun  four  months  later.  Month  after 
month  went  by,  but  the  War  Department  did  nothing  about 
San  Pedro.  Los  Angeles  people  bitterly  complained.  They 
repeatedly  called  General  Alger's  attention  to  the  delay,  and 
had  in  return  bland,  empty  promises  of  immediate  action. 
They  began  to  understand  that  the  real  intention  was  to 
stop  the  work  until  the  matter  could  be  thrown  back  into 
Congress,  and  Santa  Monica  be  substituted. 

Former  Congressman  McLachlan,  of  Los  Angeles,  pro- 
tested once  more  to  Alger,  and  received  the  startling  infor- 
mation that  the  Board's  report  was  defective  and  must  be 
carefully  studied  before  action  could  be  taken. 

Another  month  went  by  with  no  sign  of  action.  Mr. 
McLachlan  again  called  General  Alger's  attention  to  the  de- 
lay. This  time  General  Alger  lost  his  temper,  declined  to 
answer  any  questions,  and  declared  that  he  would  adver- 
tise for  bids  when  he  got  ready. 

Senator  White  now  introduced  a  resolution,  calling  upon 
the  Secretary  of  War  for  information  about  the  delayed 


272  STORIES    OF    THE    GREAT    RAILROADS 

work  at  San  Pedro.  General  Alger  furnished  in  reply  sev- 
eral reasons,  all  denounced  as  flimsy  or  baseless,  and  the 
Senate  responded  in  a  curt  resolution  directing  the  Secre- 
tary of  War  to  begin  work  at  once. 

This  resolution  the  Secretary  of  War  calmly  ignored. 

Los  Angeles  people,  after  a  time,  called  his  attention  to  it. 

He  remarked  blithely  that  it  meant  nothing  to  him  be- 
cause it  has  not  been  passed  by  the  House. 

Then  some  kind  friends  took  him  aside  and  told  him  that 
if  he  persisted  in  that  view,  the  Senate,  when  it  reassem- 
bled, would  attend  to  his  case  in  a  way  that  would  surprise 
him.  General  Alger  intimated  that  he  did  not  care. 

By  this  time  people  in  Los  Angeles  were  deeply  stirred. 
They  united  in  a  petition  to  President  McKinley,  reciting 
the  facts.  He  referred  it  to  Attorney  General  McKenna. 
Mr.  McKenna  rendered  an  opinion  that  there  was  no  legal 
reason  why  work  should  not  begin  at  once  at  San  Pedro. 
General  Alger  let  the  opinion  lie  a  month- on  his  desk  with- 
out deigning  to  notice  it. 

The  Free  Harbor  League  and  the  people  of  all  South- 
ern California  seeing  how  Mr.  Huntington  had  outwitted 
them,  and  that  he  had  every  prospect  of  defeating  them  at 
last,  began  a  desperate  campaign  against  Alger,  trying 
chiefly  to  induce  the  President  to  force  his  Secretary  of 
War  to  act  or  to  force  him  out  of  office. 

After  three  months  of  this,  Alger  was  driven  to  the  point 
of  saying  that  he  could  not  begin  the  work  because  there 
was  no  direct  appropriation,  and  he  must  wait  until  Con- 
gress should  vote  again. 

The  people  pointed  out  that  even  if  this  were  true  he 
could  advertise  for  bids  and  make  a  start. 

General  Alger  said  he  had  no  money  to  advertise  with. 

All  the  Los  Angeles  and  San  Francisco  papers  tele- 
graphed offers  to  print  the  advertisements  for  nothing,  and 


THE   STORY   OF   THE    HARBOR   FIGHT  273 

the  Los  Angeles  Chamber  of  Commerce  guaranteed  that 
it  would  pay  all  advertising  bills. 

General  Alger  said  this  would  not  be  dignified  and  got 
up  some  question  that  he  said  must  be  referred  to  the  Judge- 
Advocate  General. 

The  Judge-Advocate  General  promptly  decided  that  the 
question  was  without  substance,  and  that  anyway,  there 
was  $50,000  available  for  advertising. 

Meantime,  Mr.  McKenna  had  ceased  to  be  Attorney-Gen- 
eral, being  succeeded  by  Mr.  Griggs.  General  Alger  now 
referred  to  Mr.  Griggs  the  identical  question  that  previ- 
ously had  been  referred  to  and  decided  by  Mr.  McKenna. 

At  this  the  whole  State  of  California  broke  into  fierce 
and  bitter  complaint.  It  was  directed  at  President  Mc- 
Kinley,  and  at  last  it  evoked  from  him  a  positive  order  that 
the  Secretary  of  War  should  begin  work. 

He  had  wasted  two  years  and  one  month. 

The  contract  was  now  let,  the  breakwater  constructed, 
and  the  harbor  completed. 

Its  value  to  Los  Angeles  is  not  yet  obtainable,  because 
the  Southern  Pacific  barricades  it  with  some  of  the  most 
extortionate  rates  known  on  this  or  any  other  continent. 
But  the  inevitable  result  of  the  railroad  company's  policy 
will  be  a  municipal  railroad  to  the  harbor  and  the  beginning 
of  Los  Angeles  as  a  great  seaport. 

Such  are  the  latter  day  operations  of  the  Southern  Pa- 
cific in  national  affairs.  And  here  is  a  sample  of  its  record 
in  regard  to  municipah'ties. 

By  1905  most  of  the  valuable  franchises  in  Los  Angeles 
had  been  seized  by  the  allied  Interests,  of  which  the  South- 
ern Pacific  was  the  chief  and  commander.  One  was  left, 
being  the  chance  to  build  a  railroad  along  the  river  bank 
in  the  city  limits. 

On  March  26,  1906,  the  mayor  was  out  of  town,  and  one 
Summerland,  president  of  the  City  Council,  was  acting 


274  STORIES    OF    THE    GREAT    RAILROADS 

mayor.  The  Council  was  in  regular  weekly  session.  At 
4 :30  P.  M.,  when  all  routine  business  had  been  disposed  of 
and  most  of  the  spectators  had  departed,  an  ordinance  was 
introduced,  granting  to  one  E.  W.  Gilmore,  "and  his  as- 
signs," a  franchise  for  a  railroad  on  the  west  bank  of  the 
river  from  the  south  city  limits  to  Alesio  Street,  a  distance 
of  about  three  miles. 

This  was  put  on  passage  at  once.  Mr.  Charles  D.  Wil- 
lard,  representing  the  Municipal  League,  perceived  what 
was  on  foot  and  vehemently  protested.  He  went  upon  the 
floor  of  the  Council  and  appealed  to  an  honest  alderman  to 
vote  against  the  grab.  A  representative  of  the  city  at- 
torney's office  joined  him  in  strenuous  objection.  Never- 
theless, the  ordinance  was  jammed  through. 

Outside  waited  a  carriage  to  take  a  messenger  with  the 
ordinance  to  Summerland's  house,  where  he  was  prepared 
to  sign  it.  But  first  the  signature  of  the  City  Clerk  was  nec- 
essary. An  underling  dashed  downstairs  to  the  City  Clerk's 
office,  put  the  ordinance  under  City  Clerk  Lelande's  nose, 
and  asked  him  to  sign  it,  giving  the  impression  jthat  it  was 
merely  routine  legislation. 

Lelande  demurred,  looked  over  the  document,  and  re- 
fused to  sign.  Without  his  signature,  Summerland  could 
do  nothing,  and  the  ordinance  was  hung  up. 

The  next  day  the  discovery  was  made  that  because  of  a 
technical  irregularity  in  the  passing  of  the  ordinance,  it 
must  needs  be  passed  again,  and  a  special  meeting  of  the 
Council  was  called  for  the  next  day,  Wednesday,  March 
28th,  when  the  iniquity  went  through  by  a  vote  of  6  to  1. 

What  happened  next  will  be  found  related  in  the  follow- 
ing affidavit,  which  covers  the  whole  story; 

STATE  OF  CALIFORNIA,  1 
COUNTY  OF  Los  ANGELES. 

H.  J.  LeLande,  being  duly  sworn,  deposes  and  says : 

The   facts  in   relation   to  the   attempted   passage   of   what   has 


THE  STORY   OF   THE    HARBOR   FIGHT  275 

become  generally  known  as  the  Gilmore  river  bed  franchise  are 
as  follows: 

Late  in  the  afternoon,  about  6:30  P.  M.,  of  the  date  when  this 
franchise  was  first  presented  to  the  Council,  Mr.  Wilde,  my  chief 
deputy,  came  into  my  private  office  and  placed  this  franchise  on 
my  desk  before  me,  stating  that  "the  boys  upstairs  were  in  a  hurry 
for  this,"  and  asked  me  to  sign  it.  This  franchise  consisted  of 
several  typewritten  pages.  Mr.  Wilde  turned  it  over  to  the  last 
page,  which  contained  the  space  for  the  signature  of  the  mayor  and 
myself,  and  asked  me  to  sign  it,  as  "the  boys  were  upstairs  waiting 
for  it,"  and  I  asked  what  it  was.  Mr.  Wilde  replied,  "A  franchise 
for  a  spur  track."  I  told  Mr.  Wilde  that  I  would  sign  it  in  a 
few  minutes  as  I  was  busily  engaged  writing  a  letter. 

Mr.  Wilde  left  my  private  office,  and  shortly  after  his  departure 
W.  R.  Hervey  came  into  my  private  office  and  asked  if  I  had 
signed  the  ordinance  that  Mr.  Wilde  brought  in,  and  I  stated  that 
I  had  not;  and  he  said  that  Mr.  Gilmore  was  going  away  that 
evening  and  would  like  to  have  me  sign  it  at  once,  as  they  wished 
to  have  it  published  in  the  morning.  After  Mr.  Hervey  had  made 
this  statement  I  looked  at  the  document  for  the  first  time,  and  then 
informed  Mr.  Hervey  that  I  would  wait  and  allow  this  to  go 
through  in  the  usual  manner  as  I  did  not  see  any  necessity  for 
haste,  or  words  to  that  effect.  Mr.  Hervey  urged  me  as  a  personal 
favor  to  him  and  to  Mr.  Gilmore  to  sign  it  at  once,  and  I  again 
informed  him  that  I  saw  no  necessity  to  hurry  this  matter,  and  he 
stated  that  he  would  see  that  I  signed  it  and  left  the  office, 
apparently  angry. 

Very  shortly  after  Mr.  Hervey  left  the  office,  Mr.  Gilmore 
came  in  and  said  that  he  was  going  to  leave  town  that  night 
and  wanted  to  get  this  fixed  up  and  published  in  the  morning, 
and  pleaded  with  me  to  sign  it  at  once.  I  made  the  same  reply 
to  Mr.  Gilmore  that  I  made  to  Mr.  Hervey,  that  "I  would  allow 
the  ordinance  to  take  its  usual  course."  After  I  had  made  this 
statement,  Mr.  Gilmore  continued  to  plead  with  me  to  sign  the 
ordinance,  which  I  refused  to  do. 

Just  before  I  started  for  home  I  was  called  up  on  the  telephone 
and  informed  that  Mr.  Summerland  was  waiting  upstairs  for  me 
to  bring  that  ordinance.  I  answered  "All  right,"  but  had  no 
intention  of  bringing  it  up.  I  took  my  hat  and  left  for  home. 
And  shortly  after  I  had  finished  my  dinner,  Mr.  Gilmore  called 
at  my  residence  and  again  pleaded  with  me  to  sign  the  ordinance 
that  night,  and  again  said  that  this  was  a  matter  of  great  importance 


276  STORIES    OF    THE    GREAT    RAILROADS 

to  him  and  he  was  desirous  of  having  the  matter  completed  before 
he  left  the  city,  and  offered  me  his  political  influence  if  I  would 
sign  it.  He  made  the  statement  that  I  would  never  regret  signing  it. 

Then,  shortly  a'fter  the  departure  of  Mr.  Gilmore  from  my 
residence,  I  came  back  to  the  office  and  Mr.  W.  F.  Parker  called 
me  up  by  'phone  that  night  and  wanted  to  know  if  I  was  going 
to  be  at  my  office  for  a  few  minutes.  I  stated  that  I  was,  and 
he  said  he  was  coming  over.  Shortly  after  receh^ng  the  message, 
Mr.  Parker  came  to  my  office  and  asked  to  see  the  ordinance, 
which  I  allowed  him  to  do,  and  he  made  the  statement  that  he 
didn't  know  whom  it  was  for,  and  that  he  was  glad  I  hadn't  signed 
it,  and  asked  me  not  to  sign  it  until  he  had  found  out  more  about 
it.  I  told  him  that  I  had  not  intended  to  sign  it  until  the  following 
day  anyway. 

The  minute  clerk  had  prepared  his  minutes,  showing  that  the 
council  had  adopted  the  ordinance  by  a  vote  of  six  to  one, 
Summerland  being  acting  mayor  in  McAleer's  absence,  and  Mr. 
Smith  being  absent.  My  attention  was  called  to  the  fact  that 
Councilman  Houghton  first  voted  "No"  and  finally  changed  his 
vote  to  "Yes,"  other  business  having  been  transacted  in  the  interim, 
and  at  the  time  that  Councilman  Houghton  changed  his  vote  to 
"Yes"  the  chairman  then  announced  that  the  ordinance  had  been 
adopted;  so  when  the  members  of  the  Council  found  that  we  had, 
on  Tuesday,  recorded  the  ordinance  as  having  been  lost  they  met 
again  on  the  next  day,  Wednesday,  and  passed  the  ordinance  by 
a  vote  of  six  to  one.  I  will  furnish  an  exact  copy  of  the  minutes 
showing  the  above  statement  to  be  correct. 

About  three  o'clock  on  Wednesday,  the  day  the  ordinance  was 
passed,  Mr.  Parker  called  me  up  by  'phone  and  asked  me  if  I 
would  step  down  to  his  office.  I  informed  him  that  I  was  quite 
busy  and  would  prefer  having  him  come  to  my  office  in  the  city 
clerk's  office.  He  said  he  thought  it  was  best  for  him  not  to 
come  there,  but  would  meet  me  at  the  Hotel  Alexandria  buffet. 
I  replied  that  I  would  meet  him  there  after  five  o'clock.  I  left 
the  office  about  five  o'clock  and  went  to  the  Alexandria  buffet 
and  there  met  Mr.  Parker  in  one  of  the  little  cushion  places  there. 
He  opened  the  conversation  and  said,  "I  suppose  you  know  what 
I  want  to  see  you  about?"  I  answered  that  "I  believe  I  do,"  or 
words  to  that  effect. 

One  of  the  first  questions  asked  me  by  Parker  was  "How  MUCH 

WILL  YOU  TAKE  TO  SIGN  THAT  ORDINANCE  RIGHT  AWAY?"  Or  WOrds  to 

that  effect.    I  remember  this  distinctly  because  I  was  surprised  that 


THE   STORY   OF   THE    HARBOR   FIGHT  277 

he  would  make  such  a  statement.     After  which  he  said,   "I  CAN 

GET   YOU   A  THOUSAND   DOLLARS    IF   YOU    SIGN   THAT   ORDINANCE   TO-DAY 
AND   TAKE    IT   TO    SuMMERLAND." 

My  answer  was  that  "I  did  not  want  any  of  that  kind  of 
money." 

He  also  made  the  statement  that  MONEY  WAS  BEING  SPENT  AND  I 
MIGHT  AS  WELL  GET  SOME  OF  IT.  He  said  that  my  power  was  not 
executive,  that  my  duty  was  simply  ministerial,  and  that  I  might 
as  well  get  the  money  and  sign  it  and  get  it  out  of  my  hands  as 
quickly  as  possible.  I  said  that  I  was  going  to  hold  it  until  Mayor 
McAleer  came  back.  He  said  that  it  didn't  make  any  difference 
to  him,  that  I  was  overlooking  a  chance  to  get  some  of  the  money, 
or  words  to  that  effect;  whereupon  I  returned  to  the  office. 

At  the  time  Parker  and  I  had  the  conversation  in  the  Alexandria 
buffet  he  told  me  that  he  had  found  out  that  this  was  for  Mr. 
Huntington.  He  made  this  last  statement  as  to  his  having  found 
out  that  it  was  for  the  Huntington  interests  in  connection  with 
his  statement  that  money  was  being  used.  Various  other  people 
called  me  up,  some  before  this  conversation  with  Mr.  Parker,  and 
some  after,  but  no  officials,  and  urged  me  to  sign  it  and  get  it  out 
of  my  hands  quick,  or  words  to  that  effect. 

I  went  back  to  my  office  and  stayed  there  until  about  6:30 
o'clock.  In  the  mean  time  I  had  several  calls,  and  I  went  home 
and  stayed  at  home  until  about  8:15  o'clock,  when  I  left  home  to 
keep  from  being  further  disturbed.  Wednesday,  about  four  o'clock, 
Charley  McKeag  was  the  man  that  sent  a  telegram  at  my  request 
to  McAleer,  who  was  then  out  of  the  city,  to  return  as  quickly 
as  possible.  I  kept  the  ordinance  in  my  safe  until  Mayor  McAleer 
returned. 

After  McAleer's  return,  then,  to  get  it  to  the  mayor,  I,  of  course, 
certified  it,  so  that  he  might  sign  it  or  veto  it.  No  previous  legal 
notice  of  any  kind  was  given  to  the  public  of  the  intention  to  pass 
this  ordinance,  and  no  competitive  bids  were  asked  for. 

(Seal)  (Signed)   H.  J.  LELANDE. 

Subscribed  and  sworn  to  before  me  this  22d  day  of  November, 
1909. 

(Signed)   GEO.  S.  WELCH. 

Notary   Public  in  and   for  the  County  of  Los  Angeles,  State  of 
California. 

On  his  return,  Mayor  McAleer  vetoed  the  ordinance  in 


278  STORIES    OF    THE    GREAT    RAILROADS 

a  message  so  virulent  that  one  of  the  aldermen  moved  that 
the  "insult  be  returned  with  the  rest  of  it,  unread." 

The  intention  was  to  pass  the  ordinance  over  his  veto, 
but  the  people  of  Los  Angeles,  whose  wrath  had  been  ris- 
ing from  the  first  news  of  the  steal,  were  now  in  a  state  of 
dangerous  excitement.  Among  the  most  orderly  and  law- 
abiding  of  people,  they  had  been  wrought  out  of  their  usual 
self-command  by  the  audacity  of  the  franchise  grabbers, 
and  if  the  councilmen  had  persisted  in  defying  public  opin- 
ion some  remarkable  scenes  might  have  followed.  But  the 
aldermen  took  fright  and  abandoned  the  ordinance. 

Such  is  the  modern  method  of  the  Southern  Pacific  in 
politics. 

And  here  is  its  modern  method  in  business : 

The  great  steamers  Mongolia  and  Manchuria,  of  the  Pa- 
cific Mail,  in  every  way  magnificent  specimens  of  marine 
architecture,  were  built  at  Newport  News  for  the  Atlantic 
Transport  Line,  under  the  belief  that  Congress  would  pass 
the  ship  subsidy. 

When  this  hope  failed,  the  two  steamers  were  sold  to 
the  Oregon  Short  Line,  a  possession  of  the  Southern  Pa- 
cific Railroad  system. 

That  is  to  say,  they  were  bought  with  the  money  of  the 
Oregon  Short  Line.  In  point  of  fact  (according  to  the 
sworn  testimony  of  a  high  officer  of  the  company),  their 
purchase  stood  in  the  name  of  Mr.  E.  H.  Harriman,  by 
whom  they  were  leased  to  the  Pacific  Mail,  and  who  col- 
lected from  the  Pacific  Mail  their  rental,  which  was  $30,000 
a  month  for  each  steamer. 

In  other  words,  Mr.  Harriman,  representing  the  Standard 
Oil  interests,  controlled  the  Oregon  Short  Line  and  also 
controlled  the  Pacific  Mail.  He  used  his  control  of  the 
Oregon  Short  Line  to  buy  the  steamers  with  the  Oregon 
Short  Line's  money  (in  his  name),  and  then  used  his  con- 


THE   STORY   OF   THE    HARBOR   FIGHT  279 

trol  of  the  Pacific  Mail  to  lease  the  property  thus  secured 
for  his  own  benefit.10 

That  is  the  way  the  thing  is  done  now. 

For  all  of  it  at  all  times  we  must  pay. 

To  what  extent  we  have  already  paid  may  be  gathered 
from  a  table  with  which  we  may  well  conclude  our  reflec- 
tions on  this  edifying  subject.  It  does  not  show  the  total 
production  of  the  Great  Millionaire  Mill;  probably  no 
human  mind  could  trace,  formulate,  and  accurately  state 
what  that  production  has  been.  It  shows  only  a  part  of 
the  wealth  that,  without  return  of  any  kind,  we  have  freely 
bestowed  upon  this  unparalleled  institution. 

CENTRAL  PACIFIC— 

Government  land  grant,  minimum $  30,000,000 

Unearned  dividends  on  stock 34,000,000 

Capitalized  interest  on  subsidy  bonds 30,700,000 

Common  stock  (representing  no  investment) 67,275,500 

Bonus  on  bonds 16,819,000 

$178,794,500 
SOUTHERN  PACIFIC— 

Government  land  grant,  minimum $  40,000,000 

Donations  by  California  councils 1,002,000 

Mission  Bay,  donated  by  the  state,  estimated  value 

at  the  time  9,500,000 

Capital  stock   (representing  no  investment) 160,000,000 

Dividends  thereon 30,400,000 

$240,902,000 

SOUTHERN  PACIFIC  COMPANY  OF  KENTUCKY— 
Government  land  grant  acquired  with  Morgan  pur- 
chase   $  13,000,000 

Surplus  capitalized  (see  report  1903) 100,081,022 

Stock  acquired  under  early  leases 76,000,000 

$189,081,022 
Grand  Total   $608,777,522 

10  See  "In  the  Matter  of  the  Consolidation  and  Combination  of 
Carriers.  Relations  between  Such  Carriers  and  Community  of  In- 
terest therein,"  etc.  Before  the  Interstate  Commerce  Commission,  at 
San  Francisco,  January  29,  30  and  31,  1907.  This  whole  edifying 
story  of  the  Harriman  performance  is  described  in  the  testimony 
of  R.  P.  Schwerin  at  pp.  113,  115,  156,  158,  etc.  At  the  New  York 
hearing  there  were  introduced  the  minutes  of  the  meeting  of  the 
Oregon  Short  Line's  Executive  Committee  of  March  26,  1903,  at 
which  this  deal  was  ratified. 


280  STORIES    OF    THE    GREAT    RAILROADS 

Of  this  colossal  sum  only  an  inconsiderable  fraction  can 
be  held  to  represent  any  kind  of  investment,  and  the  greater 
part  is  to  this  day  drawing  interest  and  dividends  from  the 
consuming  public. 

Reflected  in  the  cost  of  living. 


CHAPTER  XII. 

THE    STORY    OF    THE    LEMON    RATE. 

And  now  for  us,  the  people,  who  pay  for  all  this  gigantic 
fortune  building,  for  fraudulent  contract  and  political  ma- 
chine, watered  stock  and  dishonest  lease;  who  paid  for  all 
yesterday  and  pay  for  it  today  and  will  pay  for  it  tomor- 
row, many  times  over. 

Where  do  we  come  in? 

In  1887,  Governor  Pattison,  at  the  close  of  the  long, 
patient,  judicial  inquiry  by  the  Pacific  Railroad  Commis- 
sion, of  which  he  was  chairman,  delivered  his  opinion  that 
the  inflated  part  of  the  Central  Pacific's  capital  amounted 
to  a  tax  of  $3,000,000  a  year1  upon  the  shippers  of  the 
country. 

We  have  seen  the  means  by  which  the  inflation  was 
achieved,  the  multifold  tricks,  swindles,  and  fraudulent  de- 
vices. This  is  what  such  things  cost  us  in  1887 — above  any 
fair  compensation  for  any  service  performed. 

In  the  eighteen  years  from  the  completing  of  the  Central 
Pacific  to  the  Commission's  report  in  1887,  the  four  men 
of  Sacramento  had  taken  from  the  shippers  of  the  country 
on  this  account  alone  $54,000,000 — through  the  forms  of 
illegitimate  toll  referred  to  by  Governor  Pattison,  and  above 
any  fair  compensation  for  any  service  performed. 

In  this  total  the  work  of  the  Contract  and  Fiance  Com- 
pany as  producer  of  fictitious  capital  has  some  place.  But 
we  are  to  remember  that,  aside  from  this  and  from  all 
other  sources  of  sudden  wealth  in  Governor  Pattison's  cal- 


1  Pacific  Railroad  Commission,  Minority  Report,  p.  146. 

281 


282  STORIES    OF    THE    GREAT    RAILROADS 

culations,  there  was  ever  the  staggering  accretion  of  a  thou- 
sand other  operations  and  a  thousand  extravagances  and 
excesses  of  power.  To  the  one  item  of  interest-bearing 
capital  that  Governor  Pattison  had  in  mind  we  must  add 
many  industrious  efforts  under  the  names  of  the  Western 
Development  Company,  the  Pacific  Improvement  Company, 
the  coal  and  iron  companies,  the  bridge  companies,  street 
railroad  companies  and  countless  other  aliases  and  masks 
behind  which  these  men  rode  the  highways.  All  these  left 
behind  their  proportionate  share  of  burden  on  the  public. 

SQ  did  the  interwoven  leases,  the  money  paid  to  prevent 
disclosure,  the  money  spent  to  defeat  Mrs.  Colton,  the 
money  spent  in  shooting  at  the  settlers  of  Mussel  Slough, 
the  money  spent  to  bribe  legislatures  and  subsidize  editors, 
the  money  spent  to  maintain  the  vast  political  machine  in 
California,  and  the  money  spent  to  defend  the  illegal  land 
grants. 

All  this  stupendous  sum  was  piled  up,  aside  from  Gov- 
ernor Pattison's  total.  Every  year  the  interest  on  it  was 
being  paid  by  the  shippers,  and  Governor  Pattison  estimated 
that  the  small  part  of  this  tribute  due  to  the  brigandage  of 
the  old  Central  Pacific  and  the  Contract  and  Finance  Com- 
pany was  $3,000,000  a  year — paid  by  the  shippers. 

The  shippers,  of  course,  merely  passed  it  along,  with  in- 
terest, to  the  consumers.  You  and  me. 

So  there  is  where  we  came  in  twenty-five  years  ago;  to 
the  tune  of  $3,000,000  a  year  cast  into  only  a  part  of  the 
Millionaire  Mill. 

Even  then,  and  even  for  that  small  part,  the  tribute  was 
beyond  any  justification  and  wholly  arbitrary. 

If  the  railroad  had  been  built  with  a  fair  degree  of  hon- 
esty and  had  been  so  managed,  or  if  it  had  represented  only 
legitimate  investment,  it  could  have  paid  from  the  begin- 
ning 6  per  cent  interest,  discharged  all  its  obligations  to 
the  government,  and  saved  in  eighteen  years  $54,000,000 
to  shippers  over  the  Central  Pacific  alone. 


THE  STORY  OF  THE   LEMON   RATE  283 

At  the  same  time,  the  Four  of  Sacramento  would  have 
owned  2,495  miles  of  railroad  absolutely  free  from  debt 
and  every  cent  of  their  investment  would  have  been  repaid 
to  them. 

This  is  not  a  surmise  but  a  simple  mathematical  demon- 
stration. If  the  enterprise  had  been  fairly  honest,  the  stock- 
holders would  have  realized  by  1887  for  every  dollar  of 
their  stock  $1.07  in  dividends,  $1.11  from  the  land  sales, 
and  would  have  had  $4  worth  of  interest  in  the  property; 
so  that  in  eighteen  years  each  dollar  would  have  yielded 
$6.18 — by  the  methods  of  approximate  honesty. 

To  the  householders  of  America  there  would  have  been 
saved  $54,000,000  of  dishonest  tolls  plus  interest  and  prof- 
its thereon. 

Those  $54,000,000  were  the  exact  measure  of  the  differ- 
ence to  us  between  honest  and  dishonest  methods.  The 
profit  of  dishonest  methods  for  eighteen  years  was  $54,000,- 
000,  on  the  Central  Pacific  alone. 

Twenty-five  years  have  passed  since  Governor  Pattison 
reached  this  conclusion. 

If  the  traffic  had  remained  as  it  was  in  1887,  and  there 
had  been  no  other  tribute  exactions,  we  should  have  paid 
so  far  $129,000,000  in  excessive  charges  because  of  crooked 
accounts  and  fraudulent  contracts;  on  the  Central  Pacific 
alone. 

The  traffic  has  greatly  increased;  the  operations  have 
been  repeated,  extended,  improved,  and  multiplied;  more 
watered  stocks  and  baseless  bonds  have  been  prodigally 
heaped  upon  the  property,  with  more  corruption,  more  bills 
for  purchased  legislation,  more  expenses  of  the  California 
political  machine,  more  payments  to  Abe  Ruef  and  his 
kind,  more  expenses  incurred  by  the  W.  F.  Herrms  and 
their  staffs  of  politicians,  more  deals,  more  dishonest  leases, 
more  hired  editors,  more  crooked  bosses. 

For  all  these  we  are  paying  year  after  year,  just  as  we 


284  STORIES    OF    THE    GREAT    RAILROADS 

pay  for  the  original  Contract  and  Finance  Company  crook- 
edness. 

So  that  if  Governor  Pattison  could  come  back  now  and 
repeat  his  inquiry,  he  would  find  the  annual  charge  that  in 
1887  was  $3,000,000  for  the  Central  Pacific  alone  is  now 
become  for  the  Southern  Pacific  system  a  charge  many 
times  that  sum. 

If  the  American  householder,  puzzling  over  the  60  per 
cent  increase  of  his  living  expenses  in  fifteen  years,  wants 
a  solution  of  his  problem,  let  him  for  a  time  contemplate 
these  facts.  Let  him  also  remember  that  they  are  merely 
typical  of  the  general  railroad  condition  and  need  only  to 
be  multiplied  into  the  number  of  "systems"  to  furnish  much 
of  the  stupendous  sum  represented  in  the  augmented  cost 
of  living.  For  in  ten  years  the  railroad  capitalization  of  this 
country,  now  eighteen  and  one-half  billion  dollars,  has  in- 
creased seven  billion  dollars — being  in  effect  a  National 
debt,  the  interest  of  which  is  levied  upon  us  as  tribute. 

How  do  we  pay  this  tribute? 

Let  us  see.  On  January  1,  1909,  the  transcontinental 
railroad  lines  increased  the  freight  rates  18  per  cent  on 
east-bound  traffic  and  a  little  more  on  west-bound  traffic. 

Conservative  authorities  in  California  estimated  that  this 
increase  of  rates  meant  an  increase  of  $10,000,000  a  year 
in  the  living  expenses  of  the  people  of  California. 

California  has  probably  400,000  families.  This  means  an 
average  increase  of  $25  a  family. 

Accomplished  by  merely  one  increase  of  rates. 

By  reason  of  this  same  increase  of  rates  the  market  value 
of  Southern  Pacific  securities  rose  nearly  $100,000,000. 
By  reason  of  this  increase  of  market  values  the  estate  of 
the  late  E.  H.  Harriman,  at  first  appraised  at  $149,000,000, 
was  found  on  examination  to  be  worth  $220,000,000. 

Twenty-five  dollars  taken  yearly  from  each  family  in 
California;  $71,000,000  piled  upon  the  private  fortune  at 


THE  STORY  OF  THE  LEMON   RATE  285 

the  other  end.  From  the  householder  to  the  vault  of  the 
railroad  magnate  a  million  pumps  pumping  dollars. 

What  do  you  get  for  this  tax  laid  three  times  a  day  upon 
the  living  of  your  household?  It  is  your  money,  the  rail- 
road company  takes  it  from  you  and  adds  it  to  the  great 
fortunes.  What  do  you  get? 

Let  us  look  into  that  next. 

Whoever  will  consider  carefully  and  impartially  the  sub- 
ject of  freight  rates  in  America  will  be  drawn  to  the  con- 
clusion that  the  so-called  science  or  system  of  making  these 
rates  consists  merely  of  discerning  how  much  can  be  ex- 
tracted from  any  community  without  inciting  it  to  resis- 
tance, and  from  any  branch  of  traffic  without  destroying 
it.  Simply  this  and  nothing  more. 

Now  you  will  not  believe  this  until  I  prove  it  to  you,  be- 
cause you  have  long  been  accustomed  to  hear  foolish  chat- 
ter about  the  enormous  difficulties  of  rate  making  and  be- 
cause, naturally,  you  have  assumed  that  in  making  rates 
there  is  considered  the  cost  of  the  service,  the  amount  of 
investment  and  the  interest  thereon,  with  taxes,  insurance, 
and  other  expenses,  and  what  would  constitute  a  just  and 
reasonable  profit. 

I  think  it  would  be  difficult  to  instance  any  railroad  rate 
in  America  made  on  any  such  basis. 

In  America  railroad  rates  are  made  under  the  pressure 
of  an  inexorable  necessity  created  by  fictitious  capitalization 
and  fraudulent  expenditures.  The  necessity  is  to  wring 
from  every  transaction  the  last  obtainable  cent.  Justice  has 
and  can  have  no  place  in  the  consideration.  What  the  traf- 
fic will  bear  is  the  one  standard  and  that  means,  plainly 
translated,  what  the  shipper  can  be  forced  to  pay. 

At  first  thought  this  sounds  unfair  and  partisan.  It  is 
neither.  It  is  only  a  cold  statement  of  facts.  It  seems 
unfair  because  we  like  to  think  there  is  reason  in  all  things. 
About  other  things  I  do  not  pretend  to  say,  but  about  rate 


286  STORIES    OF    THE    GREAT    RAILROADS 

making  I  know  there  is  no  reason  other  than  the  reason  I 
have  mentioned.  The  next  time  you  read  any  profound 
observations  by  one  railroad  lackey  or  another  on  the  intri- 
cate and  wonderful  science  of  rate  making  and  the  awe 
with  which  we  should  regard  it,  you  might  recall  some  plain 
facts  I  shall  now  give  you.  They  may  help  to  a  just  esti- 
mate of  the  railroad  lackey  and  also  cheer  your  expense  ac- 
count with  some  delicious  humor — of  a  certain  kind. 

Here  we  go,  then,  taking  at  random  and  merely  as  sam- 
ples. 

On  a  carload  of  coffee,  San  Francisco  to  New  York,  3,240 
miles  the  freight  rate  is  $180.  From  San  Francisco  to 
Phoenix,  Arizona,  a  distance  of  900  miles  and  over  the  same 
line,  the  freight  rate  for  the  same  car  is  $240. 

From  Pacific  Coast  points  (San  Francisco,  Los  Angeles, 
et  cetera)  to  Phoenix,  Arizona,  the  freight  rate  on  sugar 
is  $1  a  hundred  pounds  in  carload  lots.  From  the  same 
points  to  Memphis,  Tennessee,  about  1,200  miles  farther, 
the  freight  rate  on  sugar  is  60  cents  a  hundred  pounds. 
From  San  Francisco  to  Cheyenne,  Wyoming,  1,270  miles, 
the  rate  is  55  cents. 

California  produces  most  excellent  raisins,  but  the  people 
of  the  eastern  states  cannot  generally  avail  themselves  of 
this  abundant  product  because  the  freight  rate  to  the  At- 
lantic Coast  is  $1.10  a  hundred  pounds.  Yet,  asphaltum  is 
hauled  from  the  Pacific  to  the  Atlantic  Coast  for  only  55 
cents  a  hundred  pounds.  The  raisin  traffic  will  bear  $1.10 
and  the  asphaltum  traffic  will  bear  only  one-half  of  that. 

Cotton  goes  from  Dallas,  Texas,  to  China,  7,500  miles, 
by  way  of  Seattle  for  $1.35  a  hundred  pounds.  Of  the 
7,500  miles  in  this  haul  2,500  are  by  rail.  For  hauling  the 
same  cotton  from  Dallas  to  New  Orleans,  567  miles,  the 
rate  is  60  cents  a  hundred  pounds — or  nearly  one-half  the 
cost  of  the  7,500  mile  haul  to  China,  2,500  miles  of  which 
are  by  rail. 


THE   STORY   OF   THE   LEMON   RATE  287 

Not  long  ago  an  American  captain  was  in  Hankow,  China, 
loading  pig  iron  for  Los  Angeles.  The  Chinese  merchant 
with  whom  he  dealt,  being  both  intelligent  and  curious, 
desired  to  know  what  was  the  cost  of  carrying  iron  so  far. 
The  captain  said  the  freight  rate  was  $6  a  ton. 

"How  much  of  that  does  the  steamer  get?"  asked  the 
merchant. 

"Four  dollars  a  ton." 

"Then  the  iron  must  travel  a  long  distance  by  railroad," 
said  the  merchant. 

"No,"  said  the  captain,  "a  very  short  distance — only 
twenty-two  miles  from  San  Pedro  harbor  to  Los  Angeles." 

"Show  it  to  me  on  your  map,"  said  the  merchant,  exuding 
incredulity. 

The  map  was  produced  and  the  merchant  studied  it  care- 
fully, following  with  his  finger  the  steamer's  route  from 
Hankow  down  the  river  700  miles  to  the  ocean,  then  across 
5,000  miles  of  ocean  to  San  Pedro.  With  this  he  compared 
the  almost  imperceptible  distance  from  San  Pedro  to  Los 
Angeles.  His  conclusion  was  that  the  captain  was  lying; 
the  thing  was  manifestly  impossible.  Waybills  and  receipts 
made  no  impression  upon  him.  Either  the  captain  was  a 
monstrous  and  malicious  liar,  or  the  American  people  were 
crazy.  Politeness  and  probability  forbade  him  to  accuse  an 
entire  nation  of  lunacy ;  hence  the  fault  lay  with  the  captain. 

But  the  captain  was  not  lying;  he  was  telling  the  truth. 
The  traffic  between  Los  Angeles  and  San  Pedro,  the  harbor 
of  Los  Angeles,  is  indispensable;  therefore  it  can  bear  a 
great  deal.  You  can  ship  some  kinds  of  freight  from  an 
American  port  to  a  European  port  and  back  for  the  cost 
of  moving  the  same  freight  from  a  ship  in  San  Pedro 
harfror  to  Los  Angeles,  twenty-two  miles.  The  freight 
rate  on  iron  from  San  Pedro  to  Los  Angeles  is  $2  a  ton; 
on  other  commodities  it  ranges  from  $2.20  to  $3  a  ton.  In 
addition,  there  is  a  wharfage  charge  of  50  cents  a  ton. 
Well— I  told  you. 


288  STORIES    OF    THE    GREAT    RAILROADS 

You  see,  the  traffic  will  bear  these  charges;  hence  they 
are  levied.  There  is  no  other  reason  for  them  nor  for 
any  other  charges  that  the  Southern  Pacific  makes  any- 
where. It  gouges  and  grabs  what  it  can  because  it  needs 
every  obtainable  cent  to  pay  the  interest  and  dividends  on 
the  securities  piled  up  by  the  Contract  and  Finance  Com- 
pany and  all  the  other  historic  devices  the  nature  of  which 
I  have  explained  in  the  foregoing  chapters.  The  Los  An- 
geles merchants  must  have  their  freight  from  San  Pedro. 
There  is  no  other  way  to  obtain  it.  Hence  the  traffic  will 
bear  these  charges,  which  are  promptly  passed  to  the  people. 

How  long  the  people  will  bear  them  I  have  no  skill  to 
predict. 

San  Pedro  is  the  harbor  of  Los  Angeles  and  within  the 
city  limits.  San  Diego  is  126  miles  from  Los  Angeles.  The 
rates  from  Los  Angeles  to  San  Diego  are  about  the  same 
as  the  rates  from  one  end  of  Los  Angeles  to  the  other.  The 
San  Diego  traffic  will  not  bear  quite  so  much  as  the  Los 
Angeles  traffic. 

On  some  kinds  of  freight,  and  including  wharfage,  the 
rate  is  $3.50  a  ton  from  a  ship  in  San  Pedro  harbor  twenty- 
two  miles  across  Los  Angeles,  and  it  is  $7.50  a  ton  from 
Antwerp  to  San  Pedro — 16,000  miles  or  thereabouts. 

The  present  railroad  freight  rates  from  Sacramento,  Cali- 
fornia, to  Reno,  Nevada,  are  higher  than  the  freight  rates 
in  the  old  days  of  mining,  before  the  railroad  was  built, 
when  all  freight  must  be  dragged  over  the  mountains  by 
mule  and  ox  teams.2  This,  I  suppose,  is  one  of  the  "bene- 
fits" conferred  by  the  Big  Four  upon  the  country. 

You  can  ship  certain  kinds  of  freight  from  Liverpool  to 
San  Francisco  by  way  of  New  Orleans  for  no  more  than 


2  Before  the  Interstate  Commerce  Commission.  Traffic  Bureau 
of  the  Merchants  Exchange  versus  Southern  Pacific  Company  et  al. 
Docket  No.  2839.  Brief  for  complaint,  pp.  100-18. 


THE  STORY  OF  THE   LEMON   RATE  289 

you  must  pay  on  the  same  freight  if  your  shipment  orig- 
inates at  New  Orleans  instead  of  Liverpool.3 

Does  not  all  this  seem  strange? 

Yet,  the  Southern  Pacific,  it  must  be  confessed,  has  no 
monopoly  of  such  monstrosities. 

At  the  mines  in  West  Virginia  soft  coal  is  worth  $1  a 
ton.  When  it  has  been  transported  to  the  city  of  Wash- 
ington, 400  miles,  it  sells  for  $3.50  a  ton.  At  Scranton, 
Pennsylvania,  a  car  is  loaded  with  anthracite  coal  worth 
less  than  $2  a  ton.  The  next  morning  it  is  in  New  York 
and  worth  $6  a  ton.  Apparently,  the  cost  of  transporting 
ceal  100  miles  is  greater  than  the  cost  of  mining  it. 

In  California  coal  is  now  so  dear  that  for  the  poor  it 
must  seem  like  a  luxury ;  and  yet  there  are  in  the  mountains 
in  Colorado,  New  Mexico,  and  Utah,  and  in  the  North  Pa- 
cific states,  great  coal  deposits  that  might  afford  a  cheap 
supply  if  reasonable  freight  rates  could  be  had.  As  they 
cannot,  coal  is  regularly  brought  to  San  Francisco  from 
Australia. 

Every  person  that  consumes  anything  contributes  to  the 
freight  rates,  and  everywhere  these  rates  are  made  in  this 
arbitrary  and  extortionate  manner.  The  natural  course  of 
trade  is  continually  being  distorted,  blockaded,  and  bedev- 
iled to  give  more  profits  to  the  railroads,  to  provide  them 
with  longer  hauls,  or  a  chance  for  bigger  rates.  Commu- 
nities are  not  allowed  to  trade  where  they  can  find  the  best 
terms,  but  only  where  they  will  yield  the  best  pickings  for 
the  railroads.  A  town*forty  miles  from  St.  Paul  and  400 
miles  from  Chicago  was  compelled  to  go  to  Chicago  for  its 
supplies  because  the  railroads  made  the  rates  from  Chicago 
to  that  town,  400  miles,  equal  to  or  less  than  the  rates  from 
St.  Paul  to  that  town,  forty  miles. 

There  is  an  impression  adroitly  spread  by  railroad  press 

1  See  162  U.  S.,  197. 


290  STORIES    OF    THE    GREAT    RAILROADS 

agents  and  railroad  newspapers  that  all  these  conditions 
have  passed  away  and  the  railroads  have  reformed  their 
practices.  As  a  matter  of  fact,  there  has  been  no  essential 
change. 

The  unjust  rates  continue  year  in  and  year  out  to  collect 
our  tolls. 

Some  of  the  least  defensible  of  these  extortions  are  prac- 
ticed in  California  and  help  materially  to  gather  the  means 
for  the  dividends  and  interest  on  the  securities  we  have 
been  considering. 

For  example,  I  call  attention  to  extracts  from  the  South- 
ern Pacific's  freight  tariffs  showing  rates  from  San  Fran- 
cisco and  from  Los  Angeles.  If  you  are  unfamiliar  with 
railroad  rates,  I  may  be  allowed  to  explain  that  the  prac- 
tice is  to  charge  less  for  freight  in  carload  lots  than  for 
freight  in  smaller  quantities.  This  occasions  the  division 
into  rates  for  carload  and  rates  for  less  than  carload.  Bear- 
ing this  in  mind,  study  the  table  on  the  next  page. 

I  will  now  recite  for  your  entertainment  a  little  chapter 
of  history  showing  that  these  abuses  are  not  only  flagrant 
and  intolerable  but  firmly  rooted. 

C.  P.  Huntington  died  in  1900. 

At  that  time  one  of  the  American  railroad  executives 
most  talked  about  for  sagacity,  energy,  skill,  knowledge, 
and  results  was  Mr.  Charles  M.  Hays. 

Mr.  Hays  was  selected  to  take  the  place  of  Mr.  Hunting- 
ton  as  head  of  the  great  Southern  Pacific  system.  He  re- 
mained less  than  a  year  when,  to  the  amazement  of  the  rail- 
road world,  he  suddenly  resigned. 

Everybody  knew  there  must  have  been  some  trouble  and 
all  railroad  men  knew  that  the  trouble  was  not  with  Mr. 
Hays.  Almost  at  once  he  was  snapped  up  by  the  Grand 
Trunk,  of  which  vast  and  extending  system  he  is  now  the 
chief  commander. 


THE   STORY   OF  THE   LEMON   RATE 


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292  STORIES    OF    THE    GREAT    RAILROADS 

Mr.  Hays  never  publicly  explained  his  dissatisfaction, 
but  according  to  close  friends  of  his  he  began,  soon  after 
he  took  the  Southern  Pacific,  to  examine  the  freight  tariffs 
by  which  this  company  gathers  the  interest  on  all  these  se- 
curities. Mr.  Hays  is  known  to  be  a  just  man.  It  seemed 
clear  to  him  that  the  rates  were  indefensible  and  ought  to 
be  adjusted.  He  undertook  to  adjust  them.  The  power 
behind  the  railroad  that,  being  greater  than  all  law  and  all 
government,  had  for  many  years  thriven  upon  these  extor- 
tions, objected  to  the  changes  Mr.  Hays  desired.  Mr.  Hays 
insisted;  the  Power  insisted.  Finding  that  the  Power  was 
supreme  and  that  he  could  not  do  justice,  Mr.  Hays  re- 
signed. 

How  do  you  like  this  little  story  ? 

I  need  not  inquire  of  certain  newspaper  valets  and  hired 
men  of  the  Southern  Pacific.  I  know  they  will  not  like  it 
at  all  because  at  once  they  will  see  that  it  is  true  and  ex- 
tremely distasteful  to  their  employers.  Their  natural  im- 
pulse will  be  to  deny  it,  a  course  to  which  they  are  cor- 
dially invited. 

For  all  these  things  the  railroad  company  has  usually  its 
excuse — not  always,  but  usually. 

From  Oakland  to  Lompoc,  about  314  miles,  the  Southern 
Pacific  within  the  last  three  years  gave  to  one  lumber  com- 
pany a  rate  of  $4  a  thousand  and  to  another  a  rate  of  $7.50. 
When  one  of  the  railroad's  officers  was  on  the  witness  stand 
before  the  Interstate  Commerce  Commission,  he  was  asked 
why  the  $4  rate  was  made.  He  replied,  airily,  that  it  was 
to  meet  "water  competition."  This  is  a  favorite  excuse 
with  the  railroad  companies.  With  wonderful  effrontery 
they  offer  it  for  rates  to  points  a  thousand  miles  from  any 
water  route.  So  in  this  case  the  young  man  said  "water 
competition"  as  if  the  words  were  a  finality. 

Then  the  commission  suddenly  exhibited  the  rate  of  $7.50 
to  the  other  lumber  company  and  for  once  a  railroad  com- 


THE   STORY   OF   THE   LEMON    RATE  293 

pany  was  silenced.  Apparently,  it  could  think  of  no  way  to 
twist,  duck,  or  dodge  out  of  the  dilemma,  nor  even  to  insult, 
bulldoze,  or  browbeat  the  commission;  a  situation  rare 
in  the  commission's  experience. 

When  Manager  H.  A.  Jones,  of  the  Southern  Pacific, 
came  to  the  stand  in  Los  Angeles,  January,  1909,  he  was 
much  more  frank.  At  San  Francisco  and  Los  Angeles,  and, 
I  believe,  at  other  junction  points,  the  Southern  Pacific  ex- 
acts a  switching  charge  (so-called)  of  $2.50  a  car.  There 
is  no  sense  in  this  charge.  It  represents  no  service  per- 
formed nor  anything  else  except  an  arbitrary  exaction.  Mr. 
Jones  was  asked  why  his  company  levied  this  charge.  He 
answered  promptly  and  truthfully  that  it  levied  the  charge 
"because  it  could  get  the  money." 

When  the  "water  competition"  bogey  will  not  serve,  the 
company  can  usually  allege  something  about  the  peculiarity 
of  the  haul  or  of  the  business.  One  of  these  allegations 
can  stand  for  all  and  is,  moreover,  a  lovely  example  on  its 
own  account.  Thus: 

Some  of  the  glaring  inequalities  set  forth  in  the  table  on 
another  page  are  defended  (by  the  railroad's  cham- 
pions) on  the  ground  that  there  is  a  long  ascent  north  of 
Los  Angeles;  therefore,  the  rate  from  Los  Angeles  to 
Goshen  should  be  higher  than  the  rate  from  San  Francisco 
to  Goshen,  although  the  distance  is  the  same.  This  is  as 
good  as  any  other  defense  for  the  railroad;  and  how  good 
this  is  you  may  learn  from  the  fact  that  75  per  cent  of  the 
goods  shipped  from  San  Francisco  to  Goshen  have  already 
been  hauled  up  that  hill  north  of  Los  Angeles  without  the 
least  increase  in  rates  therefor.  That  is  because  they  have 
been  shipped  from  the  eastern  states  over  that  route.  And 
yet,  the  charge  for  the  241  miles  from  San  Francisco  to 
Goshen  is  about  18  per  cent  less  than  the  charge  for  the  241 
miles  from  Los  Angeles  to  Goshen — because  of  that  hill! 

The  hill  is  a  great  matter  when  you  ship  goods  from  Los 


294  STORIES    OF    THE    GREAT    RAILROADS 

Angeles  to  Goshen.  It  is  nothing  when  you  ship  goods  from 
New  Orleans  to  Goshen  by  way  of  Los  Angeles. 

Is  it  really  necessary  to  be  perfectly  absurd  that  we  may 
defend  our  sacred  corporations? 

Of  course,  the  shippers,  as  a  rule,  do  not  care  very  much. 
Why  should  they?  It  is  none  of  their  affair;  the  charge 
merely  becomes  a  part  of  the  price  to  the  consumer,  and  so 
long  as  that  price  is  not  great  enough  to  interfere  with 
trade  the  shipper  need  not  bother  about  it.  Changes  in 
rates  may  cause  actual  losses  to  merchants,  but  high  rates 
bear  only  upon  the  consumer.  And  the  consumer?  Oh, 
well,  he  never  knows.  The  charge  is  concealed  in  the  prices 
of  his  beefsteak  and  potatoes,  and  while  these  mount  stead- 
ily upon  him  he  blames  the  farmer  or  the  packer.  There- 
fore, on  with  the  game!  It  can  be  played  without  limit! 

First,  the  stock  issued  gratuitously  to  the  fortunate  in- 
siders; then  the  freight  rate  made  to  secure  dividends  on 
this  stock;  then  more  stock;  then  more  rates.  All  passed 
along  to  the  consumer  and  he  never  objects,  bless  his  heart, 
but  pays  his  bills  like  a  little  man. 

The  California  producer  has  not  been  so  well  tamed.  He 
has  been  protesting  forty  years  because  the  railroad  com- 
pany, applying  its  favorite  formula  in  a  way  we  must  now 
consider,  has  steadily  absorbed  all  his  profits. 

Take  oranges  and  lemons.  In  the  celebrated  orange  rate 
case  which  dragged  along  six  years,  Mr.  Joseph  H.  Call,  of 
Los  Angeles,  showed  that  under  the  prevailing  freight  rate 
the  average  profit  left  to  orange  growers  was  13  cents  a 
box,  without  any  allowance  for  decay  or  damage,*  while 
the  railroad  company  took  90  cents  a  box  for  freight.  That 
was  what  the  orange  traffic  would  bear. 

At  the  end  of  the  six  years'  fight  through  the  Interstate 
Commerce  Commission  and  the  courts  there  was  secured  a 

*  Senate  Committee  on  Interstate  Commerce,  Proceedings  of  May 
17,  1905. 


THE  STORY  OF  THE  LEMON   RATE  295 

final  judgment  reducing  the  charge  from  $1.25  to  $1.15  a 
hundred  weight.  This  meant  a  saving  to  the  orange  grow- 
ers of  $1,000,000  a  year  in  freight  rates.  The  ground  of 
the  decision  was  that  $1.15  was  a  fair  rate.  This  seems 
to  raise  the  questions  : 

(1)  How  about  the  years  in  which  the  company  was 
collecting  an  unfair  rate? 

(2)  Who  is  to  recompense  us  for  that  imposition? 

As  to  what  lemons  would  bear,  the  railroad  company 
slightly  erred.  Some  years  before  it  had  conceived  the 
idea  that  the  lemon  traffic  would  bear  an  increase  of  15 
cents  a  box  in  the  freight  rate  and  had  accordingly,  and 
for  no  other  reason,  announced  the  increase.  The  lemon 
growers  protested  vehemently  and,  of  course,  in  vain;  such 
protests  are  usually  in  vain.  All  the  profit  of  lemon  grow- 
ing was  swept  away  in  that  15  cents  of  rate  increase;  the 
producers  were  now  growing  lemons  at  an  actual  loss. 
When  this  fact  had  been  demonstrated,  the  growers  began 
to  cut  down  their  trees  and  to  turn  the  land  to  other  crops. 

This  practical  proof  that  their  calculations  had  been 
wrong  and  the  lemon  traffic  would  not,  after  all,  bear  the 
additional  tribute  they  sought  to  extort  was  all  the  rail- 
road managers  needed.  They  wanted  the  profits  of  lemon 
growing  but  they  could  understand  that  if  there  were  no 
lemons  there  would  be  no  such  profits,  so  they  rescinded  the 
increase,  went  back  to  the  old  rate,  and  induced  the  grow- 
ers to  replant  their  orchards. 

So  Akbar  remitted  the  tribute  levied  upon  a  conquered 
province  when  he  found  that  the  people  had  been  stripped 
to  their  skins. 

From  this  time  until  November  15,  1909,  the  lemon  rate 
was  $1  a  box,  California  to  eastern  points. 

Aside  from  freight  rates,  the  only  serious  trouble  about 
the  lemon  business  in  California  is  the  limit  of  the  demand. 
California  lemons  are  of  unusual  excellence;  but,  after  all, 


296  STORIES    OF    THE    GREAT    RAILROADS 

the  lemon  in  its  pristine  state  and  undiluted  remains  more 
a  fruit  of  utility  than  of  desire;  few  persons,  we  may  be- 
lieve, devour  lemons  for  delight  therein.  So  far  as  the 
California  lemon  could  be  delivered  at  all  in  America  it 
superseded,  on  merit,  all  others ;  but  because  of  the  freight 
rates  it  seldom  had  a  chance  east  of  the  Alleghenies.  The 
center  of  its  distribution  was  Des  Moines,  Iowa,  and  the 
Atlantic  states  continued  to  get  their  lemons  from  the  Medi- 
terranean. 

Of  the  annual  American  consumption  of  12,000  carloads 
of  lemons,  California  furnished  only  about  4,800  carloads, 
although  quite  able  to  furnish  all. 

The  Californians  long  agitated  for  an  increase  in  the  im- 
port duty  on  lemons,  that  the  handicap  of  their  freight 
rates  might  be  equalized  and  the  California  lemon  have  a 
chance  on  the  Atlantic  seaboard.  At  last  their  desires  were 
gratified.  The  new  tariff  of  August  5,  1909,  raised  the 
dutvon  lemons  50  per  cent. 

^"T^The  lemon  growers  rejoiced  and  were  exceedingly  glad. 
Their  joy  lasted  two  months.  In  October,  the  Southern 
Pacific  announced  that  on  November  15th  it  would  raise 
the  lemon  rate  15  cents  a  box,  or  from  $1  to  $1.15.5 

This,  you  will  understand,  is  a  minimum.  On  some 
hauls  the  rate  was  raised  to  $1.25,  $1.35,  and  $1.40. 

Faithful  to  its  good,  old  and  only  principle  in  rate  mak- 
ing, the  Southern  Pacific  had  grabbed  the  additional  profit 
for  itself.  The  lemon  traffic  would  now  bear  the  15  cents 
it  would  not  bear  before,  and  the  railroad  needed  that  15 
cents  to  pay  dividends  on  fictitious  stock. 

This  time  the  lemon  growers  combined  against  the  extor- 
tion and  brought  into  the  case  the  Mr.  Joseph  H.  Call  of 
whom  I  have  before  spoken.  I  am  bound  to  think  him  a 

8  Before  the  Interstate  Commerce  Commission.  Arlington  Heights 
Fruit  Exchange  et  al.  versus  Southern  Pacific  Company  et  al.  Pe- 
tition, p.  17. 


THE   STORY   OF   THE    LEMON    RATE  297 

I 

remarkable  man,  although  my  inclining  toward  such  dis- 
tinctions is  small.  Much  of  his  life  has  been  spent  in 
fighting  railroad  corporations,  apparently  on  conviction  and 
principle  and  not  for  the  harlotry  of  the  professional  ad- 
vocate. He  fought  the  Southern  Pacific  to  a  standstill  in 
that  settler's  case  (Southern  Pacific  versus  Otto  Groeck) 
referred  to  in  a  previous  chapter  and  it  was  he  that  showed 
that  in  the  Mussel  Slough  massacre  the  railroad  company 
had  no  more  legal  than  moral  right.  As  special  counsel  for 
the  government  he  recovered  more  than  four  million  acres 
of  grabbed  land  from  the  Southern  Pacific.6 

Mr.  Call  took  up  the  case  of  the  lemon  growers  and  got 
in  the  United  States  Circuit  Court  an  injunction  restrain- 
ing the  railroad  from  collecting  the  increased  rate.  When 
it  became  evident  that  he  would  secure  injunctions  all 
along  the  line,  the  railroad  company  desisted  for  the  time 
being  and  agreed  to  hold  the  new  rate  in  abeyance  until 
the  issue  should  be  determined  by  the  higher  courts. 

Apparently,  the  counsel  for  the  lemon  growers  was  just 
in  time.  Since  he  got  his  injunction,  the  Supreme  Court 
has  decided  in  a  similar  case  that  railroads  must  be  sued 
in  the  states  where  they  are  incorporated.  If  that  ruling 
had  applied  here,  the  injunctions  would  have  been  dissolved 
and  the  suits  began  anew7  in  Kentucky,  where  (with  great 
foresight)  the  Southern  Pacific  is  incorporated  and  where 
it  has  no  trackage  and  does  no  business. 

Meantime,  Mr.  Call  brought  the  case  before  the  Inter- 
state Commerce  Commission.  That  sounds  easy ;  in  reality, 
it  was  a  stupendous  task.  Every  company  that  handles  any 
part  of  any  lemon  shipment  must  be  served  with  a  sum- 
mons. The  original  petition  in  the  case  contained  six  pages 
of  the  names  of  companies  necessarily  sued  as  co-defend- 
ants, about  400  in  all,  many  of  them  railroads  long  since 

•See  146  U.  S.,  570-619,  and  168  U.  S.,  1-66,  and  189  U.  S.,  447. 
T  See  215  U.  S.,  501. 


298  STORIES    OF    THE    GREAT    RAILROADS 

absorbed  in  the  great  combinations.8  An  amended  petition 
filed  a  few  weeks  later  contained  the  names  of  sixty-three 
additional  and  microscopic  concerns  that  previously  had 
been  overlooked. 

Every  one  of  these  it  was  necessary  to  serve,  for  to  sue 
railroad  companies  in  this  country  is  no  holiday  perform- 
ance, be  assured.  You  can  sue  men  in  five  minutes,  but 
to  sue  a  railroad  company  may  take  five  years.  When  at 
last  all  had  been  served,  the  Interstate  Commerce  Com- 
mission took  up  the  case  and  on  June  11,  1910,  decided  that 
the  lemon  rate  should  be  $1.  The  railroads  were  expected 
to  appeal  from  this  decision,  whereupon  the  contest  would 
have  been  transferred  to  the  courts — to  last  there  for  years 
and  years.  Instead  of  appealing,  the  railroads,  possibly 
because  of  the  very  unusual  public  interest  in  the  case, 
allowed  the  rate  to  remain  at  $1. 

This  was  something  of  a  novelty  in  the  experience  of  the 
sorely  tried  American  shipper.  Ordinarily,  the  case  would 
have  been  heard  by  the  commission,  which  would  have  en- 
tered an  order  against  the  railroads  commanding  them  to 
"cease  and  desist"  from  charging  the  $1.15  rate,  so  that  if 
the  railroads  were  to  reduce  the  rate  to  $1.14^2  they  would 
be  complying  with  the  commission's  order. 

But  the  railroads  would  not  give  even  so  much  heed  to 
the  order.  They  would  take  the  matter  into  the  Federal 
Courts  and  about  four  years  later  the  complaining  lemon 
growers  would  learn  whether  they  were  to  keep  their  prof- 
its or  continue  to  hand  them  to  the  railroad  company. 

You  think  this  is  pessimistic,  unfair,  or  prejudiced,  but 
it  merely  states  the  prevailing  conditions.  Most  of  the  In- 
terstate Commerce  cases  take  longer.  "Cincinnati  and 
Texas  Railroad  versus  Interstate  Commerce  Commission" 

*  Before  the  Interstate  Commerce  Commission,  Arlighton  Heights 
Fruit  Exchange  et  al.  versus  Southern  Pacific  Company  et  al.  Pe- 
tition, pp.  3-9. 


THE  STORY  OF  THE   LEMON   RATE  299 

took  six  years ;  "Texas  Railway  versus  same,"  seven  years ; 
"Interstate  Commerce  Commission  versus  Alabama  Rail- 
way," five  years ;  "Interstate  Commerce  Commission  versus 
Chicago  Railway,"  eight  years;  "Missouri  Pacific  versus 
United  States,"  ten  years,9  by  which  time  everybody  con- 
nected with  the  original  suit  had  died  or  forgotten  all  about 
it  and  the  court  threw  it  out  on  that  ground. 

We  are  not  yet  through  with  the  famous  Lemon  Rate, 
however.  About  the  time  the  railroads  gave  up  the  idea 
of  appealing  to  a  Federal  judge  the  Commerce  Court  was 
instituted.  The  railroads  in  due  time  took  the  lemon  case 
thither  and  a  year  later  got  a  decision  reversing  the  Inter- 
state Commerce  Commission.  And  thus  the  matter  stands 
today. 

Much  wondering  attention  was  called  to  the  lemon  tariff 
grab,  as  if  it  were  something  quite  new.  As  a  matter  of 
fact,  the  only  strange  thing  about  it  is  that  anybody  should 
think  it  strange.  It  is  in  line  with  accepted  railroad  policy 
everywhere. 

The  real  beneficiaries  of  the  great  American  protective 
tariff  are  not  so  much  the  manufacturers  or  producers  as 
the  railroad  companies. 

The  railroad  companies  adjust  their  rates  to  just  below 
the  point  where  the  foreign  article  (plus  the  tariff)  can  be 
laid  down  in  any  given  territory. 

They  do  not  wish  to  see  the  American  producer  crushed, 
but  all  the  money  he  makes  they  purpose  to  take  for  divi- 
dends and  interest  on  securities  a  la  Contract  and  Finance 
Company. 

I  submit  the  following  convincing  illustrations  made 
up  from  Mr.  Call's  figures.  The  basis  is  the  transconti- 
nental railroad  rates  between  Pacific  and  Atlantic  or  lake 
ports  compared  with  freight  rates  from  abroad. 

9  Before  the  Senate  Committee  on  Interstate  Commerce.  Hearing 
on  the  Regulation  of  Railway  Rates,  pp.  1-2. 


300  STORIES    OF    THE    GREAT    RAILROADS 


Average  of 
Approximate 
Commodity.        Tariff  Duty. 

Ton 
Bituminous  Coal             $0  67 

Freight 
Rate  from 
Abroad. 

Ton 

$6.00 

Total 
Import 
Cost. 

Ton 

$667 

Railroad 
Terminal 
Rates.10 

Ton 

$6.30U 

Portland  Cement  1.60 

6.00 

7.60 

7.0011 

Steel    Ingots    8.00 

6.00 

14.00 

12.00 

Pig  Iron    4.00 

6.00 

10.00 

10.00 

Structural  Iron      1000 

6.00 

16.00 

16.001' 

Oranges                     .   .     2000 

3.00 

23.00 

23.00 

Cotton  Goods                   4000 

6.00 

46.00 

40.00 

Low  Grade  Dry  Goods.  40.00 

6.00 

46.00 

60.00 

Evidently  here  the  railroad  rate  is  so  made  that  it  is  a 
shade  under  the  tariff  duty  plus  the  freight  rate  from 
abroad.  By  this  adjustment,  the  importation  of  the  foreign 
article  is  not  encouraged,  but  the  railroad  company  gets  the 
greater  part  of  the  difference  in  price  between  the  foreign 
and  domestic  article.  In  other  words,  it  gets  the  real  bene- 
fit of  the  tariff  on  these  commodities.14 

We  tax  all  else  to  feed  the  manufacturer,  and  fatten  the 
manufacturer  to  feed  the  railroad  company. 

But  to  return  to  our  lemons.  The  growers  of  that  un- 
gracious fruit  have  still  another  grievance. 

To  understand  it  well  one  must  know  about  the  peculiar 
functions  of  the  American  refrigerator  car  and  I  am  not 
sure  that  I  can  explain  that  in  a  few  hundred  words,  but 
I  will  try. 

The  transporting  of  perishable  commodities  in  refrigera- 
tory cars  is  now  a  great  industry  and  very  important  to  all 


""Terminal  rates"  are  rates  from  one  point  with  water  transit 
to  another,  as  from  Chicago  to  Seattle. 

"From  Colorado  and  Utah  to  Los  Angeles  and  San  Francisco. 

"From  the  factories  in  Kansas  to  Pacific  Coast  points. 

"In  car  load  lots. 

14  Remarkable  though  unintentional  confirmation  of  this  fact  may 
be  found  in  Before  the  Interstate  Commerce  Commission;  Enter- 
prise Manufacturing  Company  et  al.  versus  Georgia  Railroad  Com- 
pany et  al.  and  China  and  Japan  Trading  Company  versus  Georgia 
Railroad  Company.  No.  981  and  994.  See  p.  73,  letter  of  J.  O. 
Stubbs  to  Howard  Ayres. 


THE  STORY  OF  THE   LEMON   RATE  301 

of  us  because  these  cars  bring  us  a  large  part  of  our  daily 
food.  Most  of  these  cars  are  owned  by  the  Beef  Trust, 
but  are  used  for  fruit  and  vegetables  as  well  as  for  meat. 
The  Beef  Trust  compels  the  railroads  to  pay  for  hauling 
its  cars  (a  mere  disguise  for  a  rebate)  and,  in  addition, 
gouges  the  consumer  through  an  onerous  charge  for  ice. 

Before  1906  the  Beef  Trust  had  contracts  with  the 
Southern  Pacific  by  which  the  Southern  Pacific,  after  it 
had  well  plucked  the  fruit  grower,  turned  him  over  to  the 
Beef  Trust,  which  in  a  workmanlike  manner  finished  the 
trimming.  When  these  contracts  expired,  gentlemen  that 
controlled  the  Southern  Pacific  could  see  no  reason  why  the 
Beef  Trust  should  have  this  good  thing  when  they  needed 
the  money  themselves,  so  they  chased  the  Trust  out  of  the 
game,  organized  a  refrigerator  car  line  of  their  own,  col- 
lected the  goodly  icing  charges  and  turned  them  into  the 
treasury,  whence  they  presently  emerged  as  additional  divi- 
dends on  more  watered  stock. 

Now  it  was  once  thought  necessary  that  lemons,  oranges, 
and  the  like  fruits  moving  east  from  California  must  be 
iced  all  the  way.  Which  was  good  for  the  refrigerator 
car  lines.  Eventually  the  growers  found  that  by  a  system 
of  precooling  the  fruit  it  would  go  through  without  icing 
and  arrive  in  perfect  condition.  So  on  such  shipments  they 
placarded  the  cars  with  this  notice: 

"Do  not  Re-ice  in  Transit." 

That  was  where  the  additional  grievance  came  in.  The 
notice  never  made  the  least  difference  to  the  railroad  com- 
pany. It  did  not  re-ice  the  car,  but  it  charged  for  re-icing 
just  the  same — $30  a  car.15  On  something  like  40,000  cars 
of  citrus  fruit  a  year.  Good  graft. 

"Before  the  Interstate  Commerce  Commission.  Arlington 
Heights  Fruit  Exchange  et  al.  versus  Southern  Pacific  Company  et 
al.  Petition  of  complaints,  pp.  15-16.  The  graft  involved  here  is 
not  much  greater  than  that  involved  in  all  these  icing  charges,  which 
are  everywhere  unjust. 


302  STORIES    OF    THE    GREAT    RAILROADS 

Others  besides  fruit  growers  had  grievances.  In  1896, 
the  Southern  Pacific  charges  on  wool  had  become  so  ex- 
orbitant that  wool  growers  were  threatened  with  ruin  and 
were  driven  back  to  primitive  conditions.  Some  of  them 
abandoned  railroad  transportation  and  hauled  their  wool 
in  wagons  200  miles  to  a  market,  finding  that  extraordinary 
reversion  to  mediaeval  methods  cheaper  than  to  pay  the 
railroad  rates.  To  these  and  to  the  lemon  growers  that 
cut  down  their  orchards  the  blessings  of  the  railroad  and 
its  "benefits  conferred"  must  have  seemed  grimly  farcical. 

Meantime,  the  cities,  like  San  Francisco  and  Los  An- 
geles, groaned,  and  so  far  as  they  dared,  they  protested. 

Every  approach  by  land  was  held  by  the  Southern  Pacific. 
Many  times  the  people  of  San  Francisco  encouraged  new 
lines  of  railroad  that  promised  competition,  and  the  city 
and  county  granted  subsidies  to  such  enterprises,  only  to 
see  the  new  projects  fall,  one  after  another,  into  the  hands 
of  the  monopoly. 

But  there  was  always  the  open  road  of  the  sea.  Monopo- 
lies can  seize  the  land ;  no  one  can  compass  the  sea.  When- 
ever years  of  effort  to  establish  competition  or  get  re- 
lief by  land  had  ended  in  failure,  the  San  Franciscans 
would  turn  to  the  sea. 

They  found  no  more  relie.  there  than  they  had  found  in 
competitive  routes  by  land. 

Two  conditions  stood  in  their  way.  Their  business  was 
with  the  eastern  states.  Therefore,  it  was  domestic  com- 
merce. The  Federal  law  restricted  domestic  commerce  to 
American  ships.  There  were  few  American  ships. 

Tht,  normal,  easy,  .and  cheap  transit  for  their  goods  was 
from  New  York  down  the  Atlantic  coast  to  the  Isthmus  of 
Panama,  across  the  Isthmus  by  the  Panama  Railroad,  and 
then  up  the  Pacific  to  San  Francisco. 

From  New  York  to  the  Isthmus  they  could  ship  easily. 


THE  STORY  OF  THE   LEMON   RATE  303 

From  the  Isthmus  to  San  Francisco  the  only  steamships 
were  those  of  the  Pacific  Mail,  and  the  Pacific  Mail  was 
owned  by  the  Southern  Pacific. 

To  prevent  the  use  of  the  water  route  and  to  compel  ship- 
ments by  rail,  the  Pacific  Mail  made  a  prohibitive  rate  be- 
tween the  Isthmus  and  San  Francisco.16 

The  merchants  of  San  Francisco  endured  this  condition 
for  years.  To  end  it,  some  of  them  organized  an  inde- 
pendent line  of  vessels  to  the  Isthmus.  Competition. 

The  Southern  Pacific  made  an  arrangement  with  the  Pan- 
ama Railroad  whereby  for  a  payment  of  $75,000  a  month17 
the  railroad  agreed  to  let  the  merchants'  freight  lie  on  the 
wharves  instead  of  carrying  it  across  the  Isthmus.  In  a 
short  time  the  wharves  were  piled  high  with  goods  the 
railroad  made  no  effort  to  move. 

The  merchants  surrendered  before  this  impossible  condi- 
tion, the  independent  line  was  abandoned,  and  the  situation 
drifted  back  to  the  undisputed  control  of  the  Southern  Pa- 
cific. Its  subsidy  to  the  Panama  railroad  for  helping  to 
throttle  California  was  alone  sufficient  to  pay  a  fair  divi- 
dend on  the  Panama's  capital.18 

Recently  there  has  been  another  attempt  (of  an  uncer- 
tain destiny)  to  revive  competition.  But  in  the  main,  this  is 
the  situation  today. 

But,  you  say,  this  is  very  strange.  The  Panama  Rail- 
road and  the  connecting  steamship  line  on  the  Atlantic  are 
now  owned  and  operated  by  the  United  States  government. 
Surely  the  government  will  not  enter  into  an  open  alliance 
for  plunder  with  the  Southern  Pacific. 

No,  but  there  is  something  else  at  work. 


10  The  chief  business  of  the  Pacific  Mail  to  the  south  was  be- 
tween San  Francisco  and  the  west  coast  ports  of  South  America. 

"Report  of  J.  L.  Bristow,  Special  Panama  Railroad  Commis- 
sioner, to  the  Senate  Committee  on  Interoceanic  Canals,  1908,  p.  13. 

18  Commissioner  Bristow's  Report,  p.  13. 


304  STORIES    OF    THE    GREAT    RAILROADS 

The  Southern  Pacific  continues  to  operate  the  Pacific 
Mail,  and  continues  to  make  prohibitive  rates.  Today  the 
total  freight  rate  from  San  Francisco  to  New  York  via 
Panama  is  $8  a  ton.  Of  this,  the  United  States  govern- 
ment, for  the  railroad  haul  across  the  Isthmus  and  the  water 
haul  to  New  York,  receives  $2.40;  the  Southern  Pacific, 
for  the  shorter  water  haul,  San  Francisco  to  the  Isthmus,  re- 
ceives $5.60. 

To  meet  this  condition  the  obvious  remedy  is  for  the  gov- 
ernment to  operate  steamships  on  the  Pacific  as  it  does  on 
the  Atlantic.  Now  see: 

In  San  Francisco,  Isidor  Jacobs,  a  civic  reformer  noted 
for  his  courage,  has  been  for  nineteen  years  fighting  rail- 
road extortion.  He  organized  the  old  Traffic  Association 
of  California,  which  brought  forth  the  San  Joaquin  Valley 
Railroad  (gobbled  by  the  Santa  Fe)  and  the  ill-fated  inde- 
pendent line  to  the  Isthmus.  For  some  years  he  has 
been  laboring  for  a  government  line  on  the  Pacific.  Largely 
at  his  instigation  the  government  sent  J.  L.  Bristow  as  a 
special  commissioner  to  investigate  conditions  pertaining  to 
such  a  line. 

At  San  Francisco,  a  public  meeting  was  held  under  the 
auspices  of  the  Chamber  of  Commerce,  which,  with  the 
two  other  mercantile  associations  of  the  city,  is  domi- 
nated by  the  Southern  Pacific.  Some  hundreds  of  mer- 
chants were  present.  Only  Mr.  Jacobs  spoke  for  the  gov- 
ernment line.  Other  speakers  praised  with  fulsome  ex- 
pressions the  Pacific  Mail  service  and  management,  and  op- 
posed a  government  enterprise. 

Mr.  Jacobs  suggested  that  Mr.  Bristow  should  invite  the 
merchants  to  come  to  him  privately  at  his  hotel  and  express 
their  opinions.  Mr.  Bristow  adopted  this  suggestion,  and  in 
the  next  two  days,  about  two-score  of  San  Francisco's  free 
and  independent  American  citizens  crept  like  criminals  into 
Mr.  Bristow's  apartments  and  after  exacting  a  pledge  of 


THE   STORY   OF   THE   LEMON    RATE  305 

secrecy  told  him  that  the  Pacific  Mail  service  was  abomina- 
ble and  extortionate  and  a  government  line  would  be  a  boon. 
Many  of  these  were  gentlemen  that  at  the  meeting  had  ex- 
pressed exactly  the  opposite  views.19 

"I  inquired  privately  as  to  the  reasons  for  the  incon- 
sistent attitude  of  these  gentlemen,"  says  Mr.  Bristow.  He 
seems  to  have  found  out.  "It  was  further  added  that  the 
tremendous  power  in  transportation  matters  which  this  com- 
bination of  steamship  and  railway  management  held  over 
the  fortunes  of  San  Francisco  shippers  would  tend  to  make 
them  timid  in  expressing  in  public  any  views  that  would  be 
displeasing  to  eitker  company."20 

"Tend  to  make  them  timid !"  Between  the  tyranny  of  a 
corporation  in  the  twentieth  century  and  the  tyranny  of  a 
satrap  in  the  first  will  some  one  kindly  point  out  the  differ- 
ence? Some  one  of  the  Glorious  Spirit  of  Optimism  pre- 
ferred, but  anyone  will  do. 

San  Francisco  never  got  its  government  line  and  the 
Pacific  Mail  continues  to  blockade  the  Isthmus  route.  The 
Southern  Pacific  influence  stopped  this  as  it  has  stopped 
every  other  relief  for  forty  years.  It  is  a  pathetic  spectacle. 
With  the  open-handed  Calif ornian  generosity  San  Francisco 
has  given  money,  lands,  and  terminals.  In  return  she  has 
had  chiefly  kicks  and  scientific  and  multiplied  extortion.  I 
think  you  can  hardly  find  in  the  world  the  fellow  to  that 
story.21 

To  epitomize  it,  one  should  look  first  at  the  magnificent 
Mission  Bay  property  freely  bestowed  upon  the  railroad, 
and  then  turn  to  contemplate  the  fact  that  at  the  great 
Portola  celebration  in  San  Francisco,  October,  1909,  the 
Southern  Pacific  was  the  only  institution  that  made  money 


10  Mr.  Bristow's  Report,  p.  4. 

"Ibid,  pp.  4-5. 

M  As  to  the  conditions  today^  see  report  of  the  Senate  Committee 
on  Federal  Relations,  California  Legislature,  to  be  found  in  the 
Senate  Journal  for  March  23,  1909,  p.  27. 


306  STORIES   OF   THE   GREAT   RAILROADS 

from  the  crowds  and  the  only  institution  that  refused  to 
contribute  a  dollar  to  the  expenses  of  the  celebration. 

Observe  next  how  much  your  laws  avail  to  restrain  this 
corporation. 

The  Hepburn  railroad  rate  regulation  act  was  passed  by 
Congress  in  1906.  It  was  the  nation's  third  and  most  stren- 
uous attempt  to  end  railroad  abuses. 

Four  months  after  it  became  a  law  all  men  in  San  Fran- 
cisco that  follow  these  matters  knew  the  Southern  Pacific 
was  paying  no  more  heed  to  the  new  than  it  had  paid  to  the 
old  law  and  was  daily  granting  the  forbidden  rebate. 

Complaint  was  made  to  the  Interstate  Commerce  Com- 
mission and  one  year  later,  in  October,  1907,  Commissioner 
Lane  came  to  San  Francisco  and  began  a  hearing. 

At  once  it  was  evident  that  the  government's  secret  service 
agents  and  inspectors  had  caught  the  railroad  red-handed. 
Amazing  details  were  laid  bare.  It  appeared  that  rebates 
abounded  for  favored  shippers  in  almost  every  line  of  com- 
merce. To  record  these  illegal  transactions  the  Southern 
Pacific  maintained  a  set  of  secret  books,  twenty  in  number, 
called  the  "A"  books,22  kept  in  a  separate  room  by  a  Mrs. 
Cummins  and  a  Miss  Lena  Amundsen.  To  these  books  no 
one  had  access  except  the  head  manipulator  of  rebates,  and 
in  them  were  set  down  thousands  of  instances  of  these  for- 
bidden advantages  to  shippers — disguised  mostly,  please 
mark,  as  alleged  claims  for  damaged  goods  or  overcharges 
— under  the  sanction  of  the  General  Freight  Agent  of  the 
Southern  Pacific.23 

Documentary  evidence  of  these  rebates  was  submitted  and 
by  the  curious  may  now  be  found  in  the  appendix  to  the 
testimony. 


22  Before  the  Interstate  Commerce  Commission.  In  the  Matter 
of  Rates,  Practices,  Accounts  and  Revenues  of  Carriers,  at  San 
Francisco,  October  2,  3,  4,  1907.  Testimony  of  J.  M.  Brewer,  pp. 
6,  7,  and  elsewhere. 

*Ibid.t  p.  7. 


THE   STORY   OF   THE    LEMON   RATE  307 

When  the  scandal  had  been  laid  bare  the  Southern  Pa- 
cific, quite  unabashed,  played  its  trump  card  and  retired 
serenely. 

It  offered  Mr.  G.  W.  Luce,  General  Freight  Agent,  as  a 
witness,  with  the  statement  that  he  could  explain  these  re- 
bates if  he  were  sworn. 

Commissioner  Lane  was  not  to  be  so  trapped.  He  recog- 
nized that  the  swearing  of  Luce  as  a  witness  would  be  an 
"immunity  bath"  for  him  and  all  his  transactions.  There- 
fore, the  commissioner  declined  to  let  Mr.  Luce  be  sworn, 
but  said  he  might  make  any  statement  he  cared  to  make. 
The  Southern  Pacific  attorney  would  not  let  Mr.  Luce  say 
anything  except  under  oath.24  And  thus  the  matter  ended. 
The  Southern  Pacific  management  said,  with  much  pretense 
of  righteous  indignation,  that  it  could  explain  everything 
if  it  were  only  allowed,  but  it  was  not  allowed — which  is  an 
excellent  line  of  talk  for  gabies — and  the  commission,  of 
course,  was  deprived  of  the  advantage  of  questioning  Mr. 
Luce. 

This  was  in  1907.  Some  optimists  may  think  that  these 
lawless  practices  having  been  thus  indubitably  revealed,  the 
Southern  Pacific  (in  the  beautiful  phrase  of  regulation) 
"ceased  and  desisted"  from  them  and  joined  the  other  rail- 
roads in  protestations  of  reform.  To  any  such  persons  I 
commend  a  reading  of  the  decision  of  the  California  Board 
of  Railroad  Commissioners,  filed  January  12,  1909,  from 
which  it  appears  that  one  year  after  the  revelations  before 
Commissioner  Lane  the  same  company  was  dealing  in  the 
same  line  of  rebates  at  the  old  stand.25 


24  Before  the  Interstate  Commerce  Commission.     In  the  Matter 
of   Rates,   Practices,   Accounts   and  Revenues  of   Carriers,  at   San 
Francisco,  October  2,  3,  4,  1907,  pp.  116,  117. 

25  Before  the  Board  of  Railroad  Commissioners  of  the  State  of 
California,  No.  102.   In  the  Matter  of  Alleged  Discriminations  by  the 
Southern  Pacific.     Pages  17  and  18  will  be  found  particularly  in- 
teresting. 


308  STORIES    OF   THE   GREAT   RAILROADS 

This  incident,  so  characteristic,  so  perfectly  typical  of  the 
whole  enterprise  from  its  inception,  may  well  close  our  little 
history. 

With  the  concentrated  bitterness  that  the  people  of  Cali- 
fornia feel  for  the  Southern  Pacific,  we  have  had  nothing 
to  do  here.  Purposely,  I  have  refrained  from  mentioning 
the  terms  in  which  most  Californians  usually  refer  to  the 
railroad,  and  have  likewise  omitted  great  store  of  material 
and  incidents  of  which  the  import  was  malignant  or  per- 
sonal or  tending  to  place  upon  individuals  responsibility  for 
a  general  condition  for  which  no  man  should  be  blamed. 

But  I  do  believe  it  to  be  a  fair  conclusion  that  the  whole 
system  upon  which  this  company  has  been  operated  from 
its  first  stock  subscription  to  this  day  is  largely  fraudulent, 
utterly  wrong,  and  gravely  injurious  to  the  people  of  Cali- 
fornia and  to  the  rest  of  the  country. 

I  do  believe  it  to  be  clear  that  every  dollar  taken  unfairly 
or  dishonestly  or  by  clever  scheming  out  of  this  property 
has  been  repaid  many  times  from  the  living  expenses  of  the 
people. 

I  do  believe  it  certain  that  all  this  represents  a  situation 
not  much  longer  to  be  endured  if  the  nation  is  to  survive 
and  be  free. 

The  highways  are  the  people's.  Let  us  return  them  to 
the  people  from  whom  they  have  been  taken  chiefly  by 
chicanery,  bribery,  and  fraud. 

For  all  these  and  all  the  other  intolerable  and  growing 
evils  of  our  transportation  system,  for  the  increased  cost 
of  living  demonstrably  produced  by  the  overissue  of  rail- 
road securities,  for  the  menace  in  the  rapid  increase  of  these 
overissues,  and  for  the  corruption  that  these  influences  al- 
ways work  in  our  public  affairs,  there  is  no  other  remedy. 

Let  us  begin  to  apply  it  now. 


CHAPTER  XIII 

/ 

THE   STORY   OF   THE   NEW    HAVEN 

"Great  Scott!"  said  Mr.  E.  H.  Harriman  one  day,  "is 
there  anything  like  that  still  left  out  of  doors?" 

He  was  speaking  of  a  certain  piece  of  railroad  that  by 
some  chance  had  not  been  loaded  to  the  guards  with  the 
common  stock,  preferred  stock,  debentures,  first,  second, 
and  consolidated  mortgages,  notes  and  refunding  certificates 
that  now  adorn  the  greater  part  of  our  admired  railroad 
structure. 

His  astonishment  was  natural.  Of  the  typical  American 
railroad  it  may  be  observed  with  truth  and  without 
prejudice  that  its  chief  business  has  largely  ceased  to  be 
the  transporting  of  passengers  and  freight  and  become  the 
issuing  of  securities  for  the  public  to  pay. 

Wonderful  invention,  the  printing  press !  Its  relations  to 
civilization  and  enlightenment  have  been  widely  recognized, 
but  no  one  has  adequately  celebrated  its  functions  in  the 
mysterious  processes  of  High  Finance.  Yet  herein  its  work 
is  in  one  way  the  most  important  of  all,  for  in  this  way  it 
comes  every  day  to  every  household  and  collects  toll  in  a 
manner  that  we  little  suspect  but  can  never  evade. 

Would  you  like  to  remove  the  lid  from  these  mysteries 
and  see  for  once  the  great  fortunes  in  the  making?  Would 
you  also  like  to  see  by  an  object  lesson  exactly  why  the  cost 
of  living  mounts  upon  us  ?  Here  is  your  chance,  then.  For 
once  the  whole  process  is  visible  to  the  plain,  ordinary  citi- 
zen, and  his  rare  and  happy  privilege  it  is  to  watch  the 
dimes  taken  from  his  earnings  and  follow  them  through 
the  dizzy  evolutions  of  Wall  Street  to  their  final  resting 
place  beyond  his  reach. 

309 


310  STORIES    OF    THE    GREAT    RAILROADS 

Prior  to  1903  the  New  York,  New  Haven  &  Hartford 
Railroad,  although  a  great  and  growing  octopus  monopoliz- 
ing the  railroad  traffic  of  a  large  region,  was  what  is  known 
as  financially  sound.  It  operated  2,037  miles  of  road  with 
a  main  line  from  New  York  City  to  Boston  and  many 
branch  lines  through  Connecticut,  Rhode  Island,  and  Massa- 
chusetts. Its  capital  stock  was  $70,897,300,  its  funded  debt 
was  $14,549,300,  its  total  capitalization  was  $85,446,600. 

Six  years  later  its  capital  stock  had  increased  72  per  cent., 
its  funded  debt  had  increased  1501  per  cent.,  its  total  cap- 
italization had  grown  to  $356,737,975. 

It  had  meantime  entered  upon  a  deliberate  plan  to  secure 
an  absolute  monopoly  of  the  entire  transportation  business 
of  New  England. 

By  1903  the  process  of  combining  and  unifying  the  steam 
railroads  had  reached  the  stage  where  there  were  three  main 
New  England  systems — the  Boston  &  Maine,  the  Boston  & 
Albany,  and  the  New  York,  New  Haven  &  Hartford.  The 
Boston  &  Maine  controlled  everything  east  and  north  of 
Boston,  and  the  Boston  &  Albany  and  New  Haven  com- 
panies everything  west  and  southwest  thereof. 

Between  the  coast  points  a  very  extensive  freight  and 
passenger  business  was  carried  on  by  water.  Through  the 
interior  trolley  lines  were  beginning  to  be  of  great  impor- 
tance and  to  threaten  the  steam  lines  with  a  steadily  growing 
competition. 

To-day  this  entire  vast  business,  steam  rail,  electric  rail, 
and  maritime  is  practically  in  the  mailed  fist  of  the  New 
Haven  except  what  is  controlled  by  the  Boston  &  Albany. 

But  the  Boston  &  Albany  is  largely  controlled  by  the  same 
powers  that  own  the  New  Haven,  and  the  two  roads  have  a 
close  traffic  arrangement  for  their  mutual  advantage. 

The  curious  spectacle  is  now  presented  of  six  populous 
and  busy  states  whose  transportation  of  every  considerable 


THE   STORY  OF  THE    NEW    HAVEN  311 

kind  is  gripped  by  one  small  group  of  capitalists  and  oper- 
ated by  them  for  their  sole  benefit. 

In  that  entire  region,  bustling  with  traffic,  they  can  lay 
upon  the  inhabitants  what  tribute  they  please. 

This  unique  and  wonderful  power,  that  makes  historic 
conquerors  like  Akbar  and  Yenghis  Khan  look  like  pigmies, 
has  been  secured  partly  through  the  handy  printing  press 
and  its  issue  of  watered  securities,  partly  by  ignoring  laws 
and  courts,  and  partly  by  the  most  strange  and  alarming 
assistance  of  government. 

First,  as  to  water  transportation. 

About  sixteen  years  ago  many  lines  of  steamboats 
threaded  Long  Island  Sound  between  New  York  and  points 
from  which  Boston  was  easily  reached. 

One  after  another  the  New  Haven  reached  out  and  gath- 
ered them  into  its  fold.  The  Fall  River  Line,  the  Provi- 
dence Line,  Norwich  Line,  Stonington  Line,  New  Bedford 
Line,  New  Haven  Line,  Bridgeport  Line,  Hartford  Line, 
Block  Island  Line,  Maine  Steamship  Company — all  taken  in. 

Independent  lines  were  formed  to  combat  this  monopoly 
and  keep  down  rates  by  means  of  blessed  competition. 

Also,  the  New  Haven  gathered  these  in,  usually  in  secret 
and  without  changing  their  apparently  independent  nature. 
Whenever  necessary,  it  started  on  its  own  account  what 
pretended  to  be  an  independent  line.  With  this  it  crushed  a 
hopeful  rival  and  brought  the  remains  into  the  fold. 

To-day  it  owns  or  controls  practically  every  means  of 
steam  transportation  by  water  routes  between  New  York 
and  New  England. 

Next,  the  trolley  lines. 

As  early  as  1893  the  threat  of  this  competition  had  be- 
come formidable.  Electricity  had  taken  the  place  of  horse 
power  on  all  the  street  railroads  within  the  towns  and  cities ; 
the  electric  railroads  were  now  being  extended  so  as  to  con- 
nect the  towns.  In  July,  1901,  the  New  Haven  directors, 


312  STORIES    OF    THE   GREAT    RAILROADS 

designing  to  suppress  this  increasing  competition,  appointed 
a  committee  of  unusual  powers,  composed  of  President 
Charles  S.  Mellen,  Mr.  Robert  W.  Taft  and  Mr.  George 
J.  Brush,  to  formulate  and  carry  out  plans  to  gain  control  of 
the  trolley  lines. 

The  committee  formed  a  separate  corporation  known  as 
the  Worcester  &  Connecticut  Eastern  Railroad  Company, 
with  a  capital  stock  of  $500,000.  To  this  company  the  New 
Haven  advanced  certain  sums  of  money.  With  this  money 
the  new  company  secured  two  or  three  small  electric  lines. 
Next  it  brought  out  the  handy  printing  press,  and  issued 
upon  the  property  thus  secured  a  fine  line  of  stocks  and 
bonds.  With  the  proceeds  of  these  stocks  and  bonds  it 
repaid  to  the  New  Haven  road  all  of  the  money  advanced 
except  $15,000. 

This  sum  of  $15,000  represented  the  New  Haven's  en- 
tire investment.  The  rest  of  the  money  required  was  sup- 
plied by  the  obliging  public  through  the  printing  press. 

In  other  words,  here  was  repeated  the  exact  process  by 
which  so  many  steam  railroads  have  been  acquired,  by 
which  Mr.  Yerkes  got  possession  of  the  street  railroads  of 
Chicago,  and  the  Ryan- Whitney  combination  got  possession 
of  the  street  railroads  of  New  York.  It  is  the  magic  wand 
of  high  finance. 

The  Worcester  &  Connecticut  Eastern  now  delivered  to 
the  New  Haven  a  majority  of  its  voting  stock,  consisting  of 
2,501  shares. 

It  was  then  ready  for  the  next  step  usual  in  these  oper- 
ations. On  May  18,  1904,  it  underwent  what  is  called  in 
the  language  of  high  finance  "reorganization."  Its  capital 
stock  was  increased  to  $10,000,000,  its  name  changed  to  the 
Consolidated  Railway  Company.  The  New  Haven  invested 
no  more  money  in  it,  but  the  New  Haven  still  held  a  ma- 
jority of  the  voting  stock  and  still  supplied  the  control  from 
its  own  officers. 


THE  STORY  OF  THE   NEW    HAVEN  313 

The  machine  was  now  perfectly  equipped  and  smoothly 
working.  The  Consolidated  proceeded  to  acquire  one  trol- 
ley road  after  another,  paying  for  them  with  its  own  deben- 
tures which  it  issued  from  the  press  as  fast  as  they  were 
required.  By  May  1,  1907,  it  had  taken  over  in  this  way 
500  of  the  600  miles  of  electric  railroad  then  operated  in 
Connecticut  and  had  crushed  the  competition  of  the  trolley. 

Meantime,  our  old  friend,  Senator  Aldrich,  and  others  in 
Rhode  Island  had  been  doing  a  little  printing  on  their  own 
account.  On  June  24,  1903,  they  organized  a  thing  called 
the  Rhode  Island  Company,  the  benevolent  purpose  of  which 
was  to  acquire  all  the  gas,  electric  light  and  street  railroad 
properties  of  Providence  and  then  to  control  the  principal 
trolley  lines  of  Rhode  Island.  To  facilitate  this  good  work, 
the  Rhode  Island  Securities  Company  was  organized  under 
the  laws  of  New  Jersey  as  a  holding  concern.  Rhode  Island 
courts  cannot  touch  a  New  Jersey  company. 

The  New  Haven  road,  having  completed  its  conquest  of 
the  entire  trolley  field  of  Connecticut,  now  turned  its  atten- 
tion to  Rhode  Island  and  observed  with  approval  the  Aldrich 
activities  there. 

In  Providence  the  New  Haven  had  a  concern  called  the 
New  England  Loan  &  Trust  Company,  for  it  had  long  recog- 
nized the  tremendous  advantage  of  controlling  money  sup- 
plies. The  New  England  Loan  &  Trust  Company  had  a 
capital  of  $50,000  (all  owned  by  the  New  Haven  Railroad) 
and  a  charter  from  the  obedient  state  of  Connecticut  that 
apparently  authorized  it  to  do  anything  except  to  hold  prayer 
meetings.  It  now  went  to  the  superior  court  at  Hartford 
and  had  its  name  changed  to  the  Providence  Securities  Com- 
pany. Next,  the  Providence  Securities  Company  issued 
$20,000,000  of  4  per  cent  bonds.  With  these  bonds  it  ac- 
quired the  Rhode  Island  Securities  Company,  and  therewith 
the  control  of  the  gas,  electric  light,  and  street  railroad  prop- 
erties of  Providence  and  the  chief  trolley  lines  of  Rhode 
Island 


314  STORIES    OF    THE    GREAT    RAILROADS 

It  next  dissolved  the  Rhode  Island  Securities,  and  the 
New  Haven  reigned  alone  in  Rhode  Island. 

The  trolley  services  of  two  states  were  now  in  its  grasp. 

Its  Consolidated  Railway  Company  next  acquired  the 
New  York  &  Stamford  Railroad,  a  trolley  line  from  Port- 
chester  to  New  Rochelle,  in  New  York,  and  its  monopoly 
became  perfect  from  New  York  City  to  the  eastern  boun- 
dary of  Rhode  Island. 

So  far  all  was  well.  The  astute  gentlemen  that  controlled 
the  New  Haven  had  for  years  looked  longingly  upon  the 
great  Boston  &  Maine  system.  It  controlled  an  enormous 
traffic,  it  was  prosperous,  it  was  a  good  dividend  earner, 
and,  best  of  all,  it  was  lightly  capitalized,  for  this  is  the 
identical  piece  of  railroad  property  whose  discovery  had 
excited  the  wonder  of  Mr.  Harriman.  To  say  that  its 
capitalization  had  never  been  juggled  were,  of  course,  to 
say  too  much.  But  its  capitalization  had  never  been  jug- 
gled to  its  injury,  and  there  remained  vast  possibilities  for 
juggling  that  had  never  been  explored. 

The  New  Haven,  on  the  contrary,  had  been  steadily  jug- 
gling all  these  years.  Its  successive  and  enormous  issues 
of  securities  were  loading  upon  it  dividend  payments  and 
fixed  charges  that  were  becoming  a  menacing  problem. 
Therefore,  it  was  in  a  position  very  familiar  in  these  jug- 
gling operations.  It  must  acquire  some  good  dividend 
earner  to  swell  its  receipts  and  support  its  own  securities, 
and  here  was  the  fat  old  Boston  &  Maine,  a  melon  just  ripe 
enough  to  cut.  So  the  New  Haven  determined  to  acquire 
the  Boston  &  Maine. 

Throughout  the  Boston  &  Maine's  territory,  but  chiefly 
in  western  Massachusetts,  the  trolley  lines  were  threatening 
it  with  great  and  increasing  competition.  The  New  Haven, 
partly  to  injure  the  Boston  &  Maine,  partly  to  extend  and 
complete  its  own  system,  and  partly,  of  course,  to  have 
excuse  for  the  printing  press,  began  now.  through  its  Con- 


THE  STORY  OF  THE    NEW    HAVEN  315 

solidated  Railway  and  its  issued  securities,  to  acquire  con- 
trol of  the  Massachusetts  trolley  lines. 

Here  is  where  it  struck  its  first  snag.  For  many  years  it 
had  dominated  the  politics  of  Connecticut  and  Rhode 
Island  with  a  power  equally  supreme,  no  matter  what  party 
might  be  in  nominal  control  of  the  government.  In  those 
states,  therefore,  it  had  proceeded  with  a  high  hand.  Some 
of  its  trolley  operations  had  been  questionable  under  the 
state  laws ;  many  of  them  were  questionable  under  the  Fed- 
eral Anti-Trust  law.  No  consideration  of  this  sort  checked 
its  way.  But  in  Massachusetts  the  situation  was  somewhat 
different. 

Massachusetts  was  corporation-ridden,  like  the  other 
states,  but  the  riding  of  the  corporations  had  never  gone 
quite  so  far  as  to  trample  with  impunity  upon  explicit  laws 
of  the  state.  One  of  these  laws,  enacted  in  1874,  provided 
in  the  plainest  terms,  that  without  the  consent  of  the  legis- 
lature no  railroad  corporation  could  directly  or  indirectly 
hold  any  of  the  stock  of  any  other  corporation  whatsoever. 
The  New  Haven  Company  was  a  Massachusetts  corpora- 
tion, but  in  open  defiance  of  the  Massachusetts  law  it  pro- 
ceeded to  acquire  and  to  hold  the  stocks  of  the  various 
Massachusetts  trolley  companies  that  it  was  now  sweeping 
into  its  net. 

The  philosophic  mind  will  always  note  with  curious  inter- 
est by  what  slender  threads  important  events  may  hang. 
For  some  time  the  New  Haven  went  its  way  triumphantly 
walking  over  the  Massachusetts  law  and  piling  up  Massa- 
chusetts trolley  upon  trolley.  It  obtained  the  Worcester 
&  Southbridge  Street  Railway  Company,  the  Worcester  & 
Blackstone  Valley,  the  Webster  &  Dudley,  and  the  Berk- 
shire Street  Railway.  It  next  started  to  acquire  through 
the  Springfield  Railway  Companies  (which  was  its  holding 
concern)  the  extensive  trolley  system  in  and  about  Spring- 
field. 


316  STORIES    OF    THE   GREAT   RAILROADS 

But  at  this  huge  gulp  the  people  of  the  region  began  to 
protest.  They  understood  that  the  proposed  absorption  was 
utterly  illegal;  they  demanded  that  their  laws  be  enforced. 

Just  at  this  juncture  fell  in  the  incident  psychologically 
required.  The  Boston  &  Maine  had  carefully  observed  the 
law  that  forbids  a  railway  company  to  hold  stock  in  an- 
other corporation;  but  it  was  beginning  to  be  pinched 
severely  by  trolley  competition,  the  lines  acquired  by  the 
New  Haven  and  by  still  others.  Therefore,  the  Boston  & 
Maine,  having  some  respect  for  the  law,  went  before  the 
legislature  and  petitioned  for  the  necessary  permission  to 
acquire  certain  competing  trolley  lines. 

With  astounding  effrontery  the  New  Haven,  represented 
by  a  powerful  lobby,  came  upon  the  field  to  oppose  this 
petition.  The  substance  of  its  argument,  therefore,  was  that 
the  Boston  &  Maine  should  not  be  allowed  to  do  lawfully 
the  identical  thing  that  the  New  Haven  was  doing  in  viola- 
tion of  the  law.  Beyond  this  height  of  impudence  it  does 
not  seem  humanly  possible  to  soar;  but  the  extraordinary 
thing  is  that  the  New  Haven  got  away  with  its  colossal 
bluff.  It  actually  succeeded  in  inducing  the  legislature  to 
defeat  the  Boston  &  Maine's  petition.  As  to  just  how  it 
wrought  an  achievement  so  marvelous,  history  is  silent,  but 
those  to  whom  the  American  legislature  is  no  mystery  will 
not  be  seriously  troubled  by  the  omission. 

The  fight  endured  for  two  legislative  sessions,  those  of 
1905  and  1906.  At  the  end,  on  June  23,  1906,  when  the 
New  Haven  came  victorious  from  the  final  encounter,  Gov- 
ernor Curtis  Guild,  Jr.,  addressed  to  the  legislature  a  mes- 
sage of  congratulation,  but  took  the  opportunity  to  strike 
a  smashing  blow  at  the  victor.  There  was  a  corporation, 
the  governor  warned  the  legislature,  controlled  by  men  not 
citizens  of  Massachusetts,  that  was  seizing  upon  all  the 
transportation  facilities  of  the  state  and  turning  them  into 
a  monopoly,  and  he  therefore  urged  upon  the  legislature, 


THE  STORY   OF  THE   NEW    HAVEN  3l7 

"with  all  the  strength  that  is  in  me,"  he  said,  the  passage  of 
acts  that  would  meet  this  menacing  situation. 

He  might  have  been  astonished  at  the  result.  Immedi- 
ately there  broke  out  a  wide-spread  public  clamor  against 
the  New  Haven  octopus  that  he  had  denounced;  the  people 
irresistibly  demanded  action  at  once  upon  the  lines  of  the 
governor's  recommendation. 

At  first,  the  New  Haven,  affording  another  pleasing  illus- 
tration of  brazen  assurance,  had  the  hardihood  to  assert 
that  although  it  was  chartered  by  the  state  of  Massachusetts 
it  was  not  amenable  to  Massachusetts  law  because  it  had 
also  a  charter  from  the  state  of  Connecticut.  Finding  that 
this  position  did  not  add  to  its  popularity  and  might  have 
serious  results,  it  quickly  shifted  its  ground.  It  now,  through 
its  officers,  expressed  astonishment  at  the  state  of  public 
feeling,  announced  its  entire  willingness  to  have  its  rights 
adjusted,  protested  against  any  legislative  action,  and  pro- 
posed instead  that  the  attorney-general  of  Massachusetts 
bring  a  suit  in  the  courts  by  which  the  rights  of  the  com- 
pany might  be  definitely  ascertained. 

Mr.  Charles  S.  Mellen,  president  of  the  New  Haven,  went 
farther.  He  appeared  before  the  railroad  committee  of  the 
legislature  and  solemnly  promised  that  if  tfie  legislature 
would  adjourn  without  taking  any  hostile  action,  his  rail- 
road would  at  once  cease  from  all  efforts  to  control  com- 
peting lines,  either  directly  or  indirectly.  He  made  this 
pledge  through  a  written  statement,  which  his  counsel 
handed  to  the  chairman  of  the  committee,  the  Hon.  Joseph 
Walker,  afterward  speaker  of  the  House  of  Representa- 
tives, and  which  Mr.  Walker  read  aloud  to  the  committee. 
The  legislature  was  convinced  of  Mr.  Mellen's  good  faith 
and  adjourned  without  acting  upon  Governor  Guild's  sug- 
gestion. 

Undei  the  terms  of  this  treaty,  the  attorney-general  of 
Massachusetts  began  a  suit  to  test  the  law  of  1874  that  the 


318         STORIES  OF  THE  GREAT  RAILROADS 

New  Haven  had  violated  by  acquiring  the  stocks  of  other 
corporations.  Having  perfect  confidence  in  their  courts 
and  much  faith  in  Mr.  Mellen,  the  people  were  satisfied  and 
the  agitation  ceased. 

The  legislators  had  hardly  reached  their  homes  when  the 
news  came  that  the  New  Haven  had  bought  the  Milford, 
Attleboro  &  Woonsocket,  the  Hartford  &  Worcester,  the 
Uxbridge  &  Blackstone,  and  the  Worcester  &  Holden,  four 
Massachusetts  trolley  lines,  whose  purchase  was  absolutely 
illegal  if  the  law  of  1874  was  valid.  How  these  purchases 
could  be  squared  with  Mr.  Mellen's  promises  has  never  been 
explained. 

But  something  still  more  formidable  impended. 

In  the  last  days  of  the  legislative  session  of  1907  the 
astounding  news  began  to  be  circulated  that  the  New  Haven 
had  secured  control  of  the  Boston  &  Maine  by  quiet  pur- 
chases of  stock  from  small  holders.  This  acquisition  vio- 
lated the  law  of  Massachusetts  and  the  law  of  the  United 
States  no  less.  The  legislature  now  took  the  unusual  step 
of  passing  a  law  to  forbid  the  violation  of  law.  It  passed 
an  act  forbidding  the  New  Haven  to  purchase  any  more 
stock  of  the  Boston  &  Maine,  or  to  exercise  any  control 
over  that  railroad  until  May  1,  1908. 

On  June  23,  1908,  the  supreme  court  of  Massachusetts 
decided  the  attorney-general's  action  to  test  the  validity  of 
the  law  of  1874  and  the  New  Haven's  trolley  road  pur- 
chases. The  decision  upheld  the  law  without  qualification, 
found  against  the  New  Haven  on  every  point,  and  ordered 
the  railroad  to  divest  itself  of  the  vast  system  of  trolleys  it 
had  acquired. 

Mr.  Mellen  obeyed  the  order  of  the  court  in  this  manner : 

There  was  registered  a  concern  called  The  New  England 
Investment  and  Securities  Company.  This  concern  is 
what  is  known  in  Massachusetts  as  a  "voluntary  associa- 
tion"; that  is,  it  has  the  right  to  issue  and  sell  stock,  but 


THE   STORY   OF  THE    NEW    HAVEN  319 

its  form  of  charter  does  not  compel  it  to  make  any  reports 
to  the  state  corporation  department.  The  voting  power  of 
the  New  England  Investment  and  Securities  Company  is 
vested  in  one  thousand  shares  of  common  stock,  seven  hun- 
dred and  fifty  of  which  shares  are  distributed  among  gen- 
tlemen that  are  directors  in  or  are  closely  allied  with  New 
Haven  interests.  . 

This  New  England  Securities  Company  took  over  vast 
systems  of  trolleys  that  the  supreme  court  had  decided  the 
New  Haven  could  not  own. 

Next,  Mr.  Charles  F.  Choate,  Jr.,  of  counsel  for  the 
New  Haven,  offered  before  the  legislature  another  written 
statement  in  which  the  railroad  company  virtually  acknowl- 
edged that  its  purchase  of  Boston  &  Maine  stock  had  been 
in  violation  of  the  law,  but  excusably  so  because  it  had 
been  done  on  the  advice  of  eminent  counsel. 

The  next  thing  men  knew,  the  New  Haven  had  quietly 
taken  all  its  Boston  &  Maine  shares  outside  of  the  state 
and  nominally  "sold"  them.  The  trolley  decision  was 
dangerous;  this  reckless  court  might  next  order  the  New 
Haven  to  divest  itself  of  these  Boston  &  Maine  shares. 
They  were  worth  $16,000,000,  and,  according  to  the  railroad 
company,  they  had  been  "purchased"  by  Mr.  John  L.  Bil- 
lard,  a  coal  dealer  in  Connecticut.  Mr.  Billard  is  said  to 
be  worth  less  than  a  million  dollars. 

This  took  them  out  of  the  jurisdiction  of  the  Massachu- 
setts courts. 

The  next  move  was  to  introduce  in  the  Massachusetts 
legislature  a  bill  that  would  sanction  the  holding  of  the 
Boston  &  Maine  stock  by  the  New  Haven  Company — that 
is  to  say,  to  legalize  the  merger. 

As  soon  as  this  adroit  scheme  became  generally  known, 
the  statehouse  was  turned  into  a  battlefield,  where  for  weeks 
the  people  fought  the  octopus  and  its  able  agents.  Not  in  a 
generation  has  the  commonwealth  been  so  stirred.  The 


320  STORIES    OF    THE    GREAT    RAILROADS 

labor  unions,  the  merchants,  the  manufacturers,  the  boards 
of  trade  and  chambers  of  commerce  were  fighting  the 
merger;  the  lobbyists,  the  politicians  and  the  trimmers 
fought  for  it.  The  labor  organizations  alone  sent  500  dele- 
gates to  appear  against  the  bill  before  the  railroad  com- 
mittee of  the  legislature.  In  favor  of  it  was  one  organiza- 
tion. This  was  called  the  "Business  Men's  Merger  League." 
It  consisted  of  forty  members  and  was  organized  by  Allen 
Buttrick,  then  a  legislative  agent  for  the  New  Haven,  since 
created  by  Governor  Draper  a  judge  in  Boston. 

The  fight  was  carried  on  with  savage  energy.  One  of  its 
results  was  the  development  of  a  man  that  for  a  time  gave 
promise  of  being  an  efficient  leader  on  the  side  of  the  people 
and  against  the  monopoly.  Norman  H.  White  was  a  mem- 
ber of  the  House  of  Representatives  from  Brookline.  In 
Boston  he  was  interested  in  a  publishing  house  and  also  a 
large  book  bindery.  Hardly  another  business  man  in  Bos- 
ton had  less  personal  concern  in  the  merger,  for  his  was  a 
business  not  particularly  affected  by  freight  rates.  Mr. 
White  perceived  that  very  great  public  interests  were  at 
stake,  and  without  regard  to  his  personal  advantages  he 
threw  himself  into  the  struggle  and  became  its  temporary 
champion. 

In  the  legislature  he  fought  every  inch  of  the  ground ;  out- 
side he  devoted  his  time  to  informing  the  public  of  the 
situation  and  arraying  it  against  the  proposed  deal.  His 
activities  before  the  public  supplemented  and  supported  the 
work  of  Louis  D.  Brandeis,  who  had  given  his  services  as 
an  attorney  against  the  merger  and  whose  dissection  of  the 
actual  financial  condition  of  the  New  York,  New  Haven  & 
Hartford  became  a  monumental  work  in  railroad  analysis. 

Mr.  White  did  these  things  at  his  own  risk  in  more  ways 
than  one.  Like  every  man  engaged  in  large  business  enter- 
prises, he  was  and  is  a  borrower  at  banks.  Soon  after  he 
began  his  fight  on  the  New  Haven,  he  found  that  for  no 
apparent  reason  his  credit  was  discontinued. 


THE  STORY  OF  THE    NEW    HAVEN  321 

I  wish  that  in  some  way  I  could  emphasize  this  fact,  be- 
cause it  shows  what  this  Power  really  is — how  tremendous, 
how  many-sided,  and  how  long-armed.  It  was  through 
similar  influence  that  Francis  J.  Heney  was  defeated  in  San 
Francisco,  and  many  business  men  in  this  country  it  has 
by  the  same  means  whipped  into  silence  or  support,  for 
through  these  means  it  exercises  across  the  continent  an 
influence  upon  our  affairs  prodigious  and  unparalleled. 

The  effort  to  silence  White  was  a  failure.  He  and  his 
associates  went  up  and  down  the  state  preaching  against  the 
merger,  pointing  out  the  evils  it  would  inflict,  but  laying 
most  stress  upon  the  fact  that  the  action  of  the  railroad  was 
grossly  illegal  and  immoral. 

Meantime,  in  the  state  senate  the  New  Haven  had  won. 
The  bill  went  to  the  House.  There  Mr.  White  and  his 
associates,  among  them  Robert  M.  Washburn  of  Worcester, 
chairman  of  the  powerful  railroad  committee,  and  Charles 
Brown  of  Medford,  attacked  it  incessantly  with  amend- 
ment after  amendment,  until  they  amended  from  it  every 
feature  that  could  be  of  the  least  use  to  the  New  Haven. 
Therefore,  the  New  Haven  WPS  more  than  willing  to  have 
the  measure  die — for  that  session. 

Meantime,  also,  the  United  States  Government  had  been 
induced  to  take  a  hand  in  the  fight.  Louis  D.  Brandeis 
went  to  Washington  with  his  analysis  of  the  New  York, 
New  Haven  &  Hartford.  Federal  District-Attorney  Asa 
P.  French,  at  Boston,  had  been  studying  the  story  of  New 
Haven's  acquisition  of  the  competing  trolley  lines  also 
and  was  convinced  that  the  Federal  law  had  been  violated. 

In  May,  1908,  supported  by  Attorney-General  Bonaparte, 
French  began  a  suit  on  these  grounds  against  the  New 
Haven,  the  Consolidated  Railroad  Company,  and  the  Provi- 
dence Securities  Company. 

This  suit  was  hailed  by  the  people  of  Massachusetts  with 
infinite  satisfaction.  It  promised  to  put  oujt  of  business  a 


322  STORIES   OF   THE   GREAT   RAILROADS 

monopoly  that  had  seized  or  was  threatening  to  seize  the 
commercial  traffic  of  all  New  England,  and  at  the  same  time 
to  relieve  the  state  from  the  task  of  enforcing  its  decrees 
upon  a  Power  apparently  too  great  for  any  one  state  to 
control.  Only  the  United  States  Government  could  deal 
adequately  with  such  an  institution,  and  now  the  Govern- 
ment had  taken  it  in  hand. 

A  feeling  of  relief  cheered  all  the  anti-merger  fighters, 
and  at  the  next  state  election,  that  of  1908,  the  merger  was 
not  a  prominent  issue.  There  was  also  a  general  impression 
that  a  kind  of  truce  had  been  tacitly  proclaimed  until  the 
Government's  suit  should  be  decided.  If  there  be  anything 
most  of  us  love  better  than  a  truce  it  is  an  excuse  for  the 
notion  that  the  Federal  Government  will  take  care  of  our 
troubles.  That  lets  us  out  so  we  can  return  to  our  balance 
sheets  and  automobiles. 

On  January  1,  1909,  Eben  S.  Draper,  the  Business  Gov- 
ernor of  Massachusetts,  was  inaugurated.  Mr.  Draper  was 
the  candidate  of  the  safe  and  sane  element.  Before  making 
his  campaign  for  governor  he  resigned  from  the  directorate 
of  the  Shawmut  National  Bank — popularly  known  as  the 
Morgan  bank  of  New  England.  On  the  board  of  the 
Shawmut  Mr.  Draper  was  associated  with  Vice-President 
Byrnes  and  Charles  F.  Choate,  Jr.,  of  the  New  Haven. 
He  had  been  elected  when  the  merger  issue  had  ceased  to 
disturb  men's  minds  and  when  what  we  most  thought  about 
was  the  Grand  Old  Party  and  the  balance  sheets. 

Early  in  April,  without  the  least  warning,  Governor 
Draper  sent  to  the  legislature  a  special  message  on  the  rail- 
road situation.  It  was  somewhat  vague,  but  in  a  general 
way  it  suggested  that  matters  were  in  an  unsatisfactory 
shape  and  the  legislature  should  do  something  to  settle 
them. 

Soon  after,  there  appeared  in  the  legislature  a  bill  to 
create  the  Boston  Railroad  Holding  Company,  under  which 


THE   STORY   OF  THE    NEW    HAVEN  323 

innocent  name  was  disguised  an  arrangement  to  authorize 
the  New  Haven  to  hold  the  Boston  &  Maine  stock. 

It  is  asserted  that  several  drafts  were  made  of  this  bill 
and  submitted  to  Mr.  Mellen,  the  one  finally  appearing 
before  the  legislature  being  the  only  one  which  he  was 
willing,  in  the  language  of  a  high  state  official,  "to  stand 
for." 

When  the  real  purpose  of  the  Boston  Railroad  Holding 
Company  became  apparent,  the  old  fight  began  again. 

This  time  there  were  new  tactics.  In  the  previous  cam- 
paign the  New  Haven  had  appealed  to  the  public;  now  it 
confined  its  attention  to  the  legislature,  to  members  of  which 
it  was  most  considerate  and  courteous.  Mr.  Mellen  enter- 
tained as  his  guests  the  members  of  the  railroad  commit- 
tees. They  went  out  to  Council  Grove  Farm,  Mr.  Mellen's 
country  place  in  the  Berkshires,  and  had  a  very  pleasant 
time.  They  inspected  the  farm  and  particularly  Mr.  Mel- 
len's prize  poultry  yard.  Some  of  the  fowls  therein  con- 
tained were  of  very  rare  breeds,  and  the  legislators  were 
much  impressed  by  the  fact  that  these  fowls  were  worth 
$500  each.  President  Allen  T.  Treadway,  of  the  Massachu- 
setts senate,  a  personal  friend  of  Mr.  Mellen,  and  Repre- 
sentative R.  de  Peyster  Tytus,  of  the  lower  House,  were 
also  present  and  much  enjoyed  the  occasion. 

All  the  gefasts  went  for  an  automobile  ride  over  the  pro- 
posed route  of  a  trolley  extension  that  Mr.  Mellen  had 
planned  for  his  lines,  and  saw  just  what  Mr.  Mellen  de- 
sired to  do.  On  their  return  they  visited  the  Red  Lion 
Inn,  of  which  Senator  Treadway  is  the  proprietor.  And 
who  should  meet  them  there  but  Mr.  Mellen  himself  and  his 
secretary,  Mr.  Fabian!  Yes,  it  was  a  delightful  circum- 
stance, as  all  can  see;  in  fact,  quite  a  coincidence.  Mr. 
Mellen  is  such  a  nice  gentleman.  Mr.  Fabian  is  a  nice 
gentleman,  too.  So  it  was  altogether  a  nice  occasion,  and 
all  present  enjoyed  it  to  the  utmost. 


324  STORIES    OF    THE    GREAT    RAILROADS 

Previous  to  that  day  there  had  been  dissension  in  the 
committee  over  Mr.  Mellen's  little  Holding  Company  bill, 
but  after  that  day  there  wasn't  so  much.  A  few  days  later 
the  bill  was  reported  favorably  and  slated  for  passage. 

There  were  still  rude,  rough  men  that  fought  against  it. 
The  chairman  of  the  railroad  committee,  Mr.  Washburn, 
opposed  his  colleagues  unswervingly.  Mr.  White  went  at 
it  again  as  fiercely  as  ever.  He  had  won  his  way  back  to 
the  House  in  spite  of  the  utmost  efforts  of  the  New  Haven, 
which  had  gone  into  his  district  to  beat  him ;  he  was  a  mem- 
ber of  the  Committee  on  Ways  and  Means ;  he  was  of  much 
influence  and  reputed  courage.  It  was  in  these  words  that 
he  summed  up  the  bill  and  its  true  meaning: 

"It  means  complete  monopoly  of  transportation  on  land 
and  sea,  uncontrolled  and  uncontrollable;  a  monopoly  of 
all  the  commerce  of  New  England  under  a  single  manage- 
ment. Such  a  monopoly  and  management  exceeds  the  lim- 
its of  greatest  efficiency  and  economy.  It  involves  an  in- 
crease in  power  in  the  hands  of  a  few  men  over  all  lines 
of  business.  Such  a  monopoly  of  transportation  and  busi- 
ness is  dangerous  to  the  political  and  financial  independence 
of  the  people  of  Massachusetts  and  all  New  England." 

But  the  lobby  worked  on,  unperturbed  by  these  certain 
truths.  It  was  directed  with  great  skill.  From  time  to 
time  it  adroitly  spread  the  impression  that  the  national  party 
management  and  certain  great  Republicans  at  Washington 
desired  to  have  the  bill  passed.  Then  the  feeling  grew  up 
that  it  was  a  party  measure ;  that  the  faith  of  the  party  was 
pledged  to  it;  that  the  men  back  of  it  were  all  fine  men, 
sturdy  supporters  of  "our  party"  and  contributors  to  the 
campaign  fund  by  which  it  had  been  enabled  to  defeat  the 
wicked  Democrats. 

What  basis  the  reports  of  Washington  influence  may  have 
had  I  cannot  assume  to  say,  but  there  is  no  doubt  that  with 
a  certain  order  of  mind  they  were  very  effective.  However, 


THE   STORY   OF   THE    NEW    HAVEN  325 

they  must  have  been  supplemented  by  others,  for  this  line 
of  talk  does  not  go  far  with  gentlemen  of  ripe  experience. 
Some  of  the  other  arguments  are  said  to  have  been  quite 
weighty,  so  weighty,  in  fact,  that  they  were  brought  up 
Beacon  Hill  in  a  suitcase. 

While  the  fight  went  on,  many  observers  were  surprised 
to  note  that  Governor  Draper  was  much  in  favor  of  the 
bill.  At  times  the  governor's  room  at  the  statehouse  was 
used  as  President  Mellen's  headquarters,  and  through  Gov- 
ernor Draper  Mr.  Mellen  informed  the  legislators  that  un- 
less the  pending  bill  were  passed  the  Boston  &  Maine  stock 
then  in  the  hands  of  Mr.  Billard,  the  coal  dealer  in  Con- 
necticut, would  remain  out  of  the  state.  But  if  the  bill 
were  passed,  said  Mr.  Mellen,  he  would  bring  the  stock 
back  into  the  state.  Were  this  stock  brought  back  into 
Massachusetts,  the  state  courts  would  have  jurisdiction 
over  it. 

In  either  event  Mr.  Mellen  had  the  situation  cinched  ex- 
cept for  the  hope  of  the  Federal  suit,  so  what  was  the  use? 
As  to  the  Federal  suit,  on  May  19th,  before  the  railroad 
committee,  Mr.  Harold  J.  Coolidge,  a  relative  of  one  of  the 
New  Haven  directors,  was  good  enough  to  say  he  had  "cer- 
tain information  from  Washington  that  the  suit  would  not 
be  pressed."  At  the  time  nobody  believed  him.  What  on 
earth  could  keep  the  Government  of  the  United  States  from 
pressing  a  suit  like  that  ? 

The  lobby  won,  Mr.  White  and  his  forces  were  defeated, 
and  the  bill  passed  on  June  18,  1909.  Governor  Draper 
signed  it,  and  soon  after,  we  may  suppose,  Mr.  Billard,  the 
coal  dealer  in  Connecticut,  was  relieved  of  the  responsi- 
bility of  caring  for  $16,000,000  worth  of  stock  on  less  than 
a  million  of  total  wealth. 

The  Boston  Railroad  Holding  Company,  created  by  this 
act,  had  a  capital  stock  of  $100,000.  This  concern  can  issue 
any  amount  of  stock,  subject  to  the  approval  of  the  Rail- 


326  STORIES    OF    THE    GREAT    RAILROADS 

road  Commission.  Its  incorporators  were  Walter  C.  Bay- 
lies, Robert  M.  Burnett,  Frederick  C.  Dumaine,  and  some 
others.  One  of  these  gentlemen,  I  note  with  pleasure,  is  a 
director  in  the  Fore  River  Shipbuilding  Company,  whose 
ownership  and  whose  contracts  with  the  United  States  Gov- 
ernment will  some  day,  I  hope,  be  investigated.  Another 
was  formerly  a  legislative  agent  for  the  gas  interests. 
Another  is  a  director  in  the  Shawmut  National  Bank,  which 
is  one  of  the  many  financial  institutions  controlled  by  the 
New  Haven — and  is  known  as  the  Morgan  bank  of  New 
England. 

All  the  voting  stock  in  the  Boston  Railroad  Holding 
Company  is  held  by  the  New  Haven.  Blest  be  the  tie  that 
binds.  The  Holding  Company  is  authorized  to  hold  Boston 
&  Maine  stock  for  the  New  Haven.  Incidentally,  it  can 
hold  the  blanket  while  an  able  construction  company  milks 
the  Boston  &  Maine  for  the  New  Haven,  if  that  be  thought 
desirable.  Such  things  have  been  known,  little  children. 

The  people  of  Massachusetts  still  pinned  their  faith  to 
the  Federal  government's  suit  as  their  hope  of  rescue  from 
the  danger  of  the  merger.  They  believed  that  the  anti-trust 
laws  of  the  nation  fully  covered  the  case  and  would  be 
rigidly  enforced. 

They  were  not  long  of  that  opinion.  It  was  on  April  20, 
1909,  that  Governor  Draper  sent  his  special  message  to  the 
legislature,  paving  the  way  to  the  Holding  Company  bill. 
Two  days  later,  in  Washington,  a  conference  was  held  at 
the  Department  of  Justice  between  Attorney-General  Wick- 
ersham  and  Mr.  E.  D.  Robbins,  of  counsel  for  the  New 
Haven.  It  was  admitted  that  what  they  were  talking  about 
was  the  merger  suit.  Mr.  Wickersham  said  that  Mr.  Rob- 
bins  wanted  to  have  it  tried  quickly  or  dismissed. 

Please  note. 

Governor  Draper  signed  the  merger  bill  on  June  18th. 

On  June  25th  came  the  amazing  news  from  Washington 


THE    STORY    OF   THE    NEW    HAVEN  327 

that  the  Government  had  dismissed  its  suit  against  the  New 
Haven. 

When  asked  for  an  explanation  of  this  remarkable  con- 
clusion of  the  case,  Attorney-General  Wickersham  said  to 
the  press: 

"In  mew  of  the  fact  that  the  suit  of  the  United  States 
now  pending  against  the  New  Haven  and  the  Boston  '& 
Main  Railroad  companies  for  a  violation  of  the  anti-trust 
act  rests  almost  entirely  upon  a  claim  that  these  companies 
had  already  consolidated  by  means  of  stock  ownership,  and 
since  the  community  most  directly  affected  is  the  state  of 
Massachusetts,  whose  laws  now  expressly  authorise  such 
consolidation,  the  Attorney-General  has  determined  to  dis- 
miss the  Government's  action." 

This  in  spite  of  the  statement  in  the  Government's  peti- 
tion that  the  merger  affected  "the  whole  of  the  New  Eng- 
land states"  and  commerce  "between  these  states  and  the 
rest  of  the  United  States";  in  spite  of  the  fact  that  this 
statement  is  most  obviously  true;  in  spite  of  the  fact  that 
one  state  cannot  nullify  the  law  of  the  nation. 

As  to  the  trolley  roads,  the  Attorney-General  said  that  so 
much  of  the  case  as  was  founded  upon  their  acquisition  had 
been  disposed  of  by  the  decision  of  the  Massachusetts  su- 
preme court  declaring  such  acquisition  to  be  unlawful.  Since 
which  time,  said  Mr.  Wickersham,  the  New  Haven  Com- 
pany had  been  parting  with  its  trolley  properties. 

Yes  ?    And  to  whom  had  it  parted  with  them  ? 

To  the  New  England  Investment  and  Securities  Com- 
pany, an  institution  it  had  formed  for  that  express  purpose, 
and  in  which  it  holds  the  controlling  interest.  It  has  merely 
passed  them  from  one  hand  to  the  other. 

This  is  the  way  the  case  stands  now,  except  that  the  legis- 
lature has  appointed  a  committee  consisting  of  the  state 
bank  commissioner,  the  tax  commissioner,  and  the  railroad 
commission  to  examine  the  physical  property  and  assets  of 


328  STORIES    OF    THE   GREAT    RAILROADS 

the  New  Haven.  This  committee  was  appointed  after  thd 
attorney-general  of  the  state  had  informed  the  legislature 
that  the  Massachusetts  charter  of  the  New  Haven  was  for- 
feited because  the  road  had  issued  some  forty  million  dol- 
lars of  stock  and  bonds  contrary  to  law.  The  committee 
has  the  authority  of  the  legislature  to  validate  these  stocks 
and  bonds  if  it  finds  that  the  assets  of  the  company  war- 
rant it.  You  may  be  sure  that  the  stocks  and  bonds  will  be 
validated. 

Meanwhile  the  merger  is  complete;  the  New  Haven  has 
in  its  grasp  the  commerce  of  New  England,  a  vast  empire 
of  rich  traffic;  and  Mr.  Mellen  is  president  of  the  Boston 
&  Maine  as  well  as  of  the  New  Haven. 

Monopoly  has  won  the  day. 

The  total  capitalization  of  the  New  Haven  has  been  in- 
creased from  $85,446,600  to  $356,737,975. 

What  does  all  this  mean  for  the  public  ? 

Passenger  rates  have  already  been  increased  five  per 
cent,  and  Mr.  Mellen  is  arguing  in  favor  of  an  increase  of 
freight  rates. 

Then,  who  pays  the  bill  ? 

Also,  who  are  the  real  rulers  of  America? 

For  by  what  power  do  you  suppose  the  United  States 
Government  was  compelled  to  become  the  assistant  of  the 
New  York,  New  Haven  &  Hartford  in  these  transactions? 

To  those  that  have  interest  in  these  speculations  I  recom- 
mend a  perusal  of  the  following  list  of  the  New  Haven's 
directors : 

William  Rockefeller.  Frederick  F.  Brewster. 

J.  Pierpont  Morgan.  I.  DeVer  Warner. 

George  MacCulloch  Miller.  Edwin  Milner. 

Lewis  Cass  Ledyard.  William  Skinner. 

Charles  M.  Pratt.  D.  Newton  Barney. 

George  F.  Baker.  Robert  W.  Taft. 

Nathaniel  Thayer.  Thomas  DeWitt  Cuyler. 


THE  STORY   OF  THE    NEW    HAVEN  329 

Amory  A.  Lawrence.  James  S.  Elton. 

Alexander  Cochrane.  James  McCrea. 

Charles  F.  Brooker.  Henry  K.  McHarg. 

George  J.  Brush.  John  L.  Billard. 

Charles  S.  Mellen.  Augustus  S.  May. 

James  S.  Hemingway.  Arthur  E.  Clark. 
A.  Heaton  Robertson. 

Before  Mr.  Wickersham  was  Attorney-General  ne  was  a 
member  of  the  law  firm  of  Strong  &  Cadwalader,  of  which 
Mr.  Henry  W.  Taft,  the  President's  brother,  is  also  a 
member. 

We  are  not  yet  at  the  end  of  this  story. 

In  October,  1910,  Mr.  Draper,  the  New  Haven's  great 
and  good  friend,  was  a  candidate  for  re-election,  having 
been  renominated  by  the  Republican  state  convention. 

Before  the  Democratic  state  convention  met  the  one 
opinion  among  all  judicious  observers  was  that  the  Repub- 
licans had  not  a  ghost  of  a  show,  and  the  Democrats,  if 
they  were  harmonious,  were  certain  to  win  at  the  polls. 

The  Democratic  convention  met,  and  instead  of  being 
harmonious,  some  malign  influence  plainly  at  work  caused 
it  to  be  deadlocked  over  the  nomination  for  governor. 

Two  factions  appeared  with  irreconciliable  aims.  One 
wished  to  nominate  Congressman  Eugene  N.  Foss,  an  anti- 
corporation  Democrat;  the  other  wished  to  nominate  Mr. 
Charles  S.  Hamlin,  who  was  Assistant  Secretary  of  the 
Treasury  in  Mr.  Cleveland's  second  administration.  Mr. 
Cleveland's  administration,  it  will  be  remembered,  was  ex- 
tremely kind  to  Mr.  Morgan,  particularly  in  the  matter  of 
certain  bond  deals. 

These  two  factions  split  the  party  wide  asunder,  and 
their  dissension  promised  to  ruin  utterly  the  Democratic 
chanse  of  success. 

Many  persons  wondered  greatly  at  the  strength  of  Mr. 
Hamlin's  support.  Mr.  Hamlin  has  never  been  a  popular 
favorite  nor  regarded  as  good  material  for  a  candidate. 


330  STORIES    OF    THE   GREAT    RAILROADS 

Yet  the  faction  that  supported  him  was  utterly  resolved  to 
have  Hamlin  or  nobody. 

In  the  course  of  this  bitter  row,  Mr.  George  Fred  Wil- 
liams, who  was  leading  the  fight  for  Foss,  suddenly  turned 
up  the  fact  that  Mr.  Hamlin  was,  and  for  thirteen  years 
had  been,  in  receipt  of  an  annual  retainer  of  $10,000  from 
the  Boston  &  Maine,  which  is  controlled  by  the  New  Haven. 

It  also  appeared  from  an  examination  of  Mr.  Hamlin's 
tax  returns  that  this  annual  retainer  of  $10,000  constituted 
four-fifths  of  his  professional  income. 

As  Mr.  Hamlin  was  not  of  the  railroad's  acknowledged 
counsel,  and  his  employment  by  the  railroad  had  never  been 
known,  the  discovery  caused  some  speculation. 

This  was  clarified  by  the  further  revelation  that  the 
president  of  the  Boston  &  Maine  had  explained  to  his  di- 
rectors the  nature  of  Mr.  Hamlin's  employment.  The  serv- 
ices were  "of  a  light  and  inconsequential"  nature,  but  as 
Mr.  Hamlin  was  of  much  influence  in  the  Democratic  party, 
said  the  president,  the  retainer  was  well  justified. 

Who  rules  America  and  whose  is  the  long  arm  that 
reaches  out  from  New  York  and  upsets  a  Democratic  con- 
vention? Who  forces  the  employment  of  men  whose  influ- 
ence in  a  political  party  makes  them  valuable  to  certain 
projects  of  finance? 

If  you  are  unprepared  to  guess  on  this  subject,  let  me 
beg  your  attention  to  this  comment  by  former  Governor 
Curtis  Guild,  Jr.,  in  his  newspaper,  the  Boston  Commercial 
Bulletin,  of  February  19,  1910 : 

"Both  of  these  men  [meaning  President  Mellen  and  Vice- 
President  Byrnes  of  the  New  Haven]  and  others  of  their 
kind  are  but  hired  megaphones,  through  which  a  beefy, 
red-faced,  thick-necked  financial  bully,  drunk  with  wealth 
and  power,  bawls  his  orders  to  stock  markets,  directors, 
courts,  governments,  and  nations. 

"We  have  been  listening  to  Mr.  Morgan." 


THE  STORY   OF  THE    NEW    HAVEN  331 

Now  go  back  for  only  a  moment. 

Each  successive  step  in.  these  developments  has  been 
marked  by  the  issue  of  new  capitalization  of  the  New 
Haven.  This  capitalization  is  stocks  and  bonds.  On  these 
stocks  and  bonds  interest  and  dividends  must  be  paid. 

To  this  total  extent : 

1903  1909 

Capital   Stock   $70,897,300      $121,878,100 

Funded  Debt   (Bonds)    14,549,300        234,859,875 


Total  Capitalization    $85,446,600      $356,737,975 

Increase  271,291,375 

In  the  same  time  the  annual  net  earnings  by  which  this 
capitalization  must  be  supported  have  increased  $7,051,- 
576.98. 

The  total  capitalization  has  increased  317  per  cent,  the 
gross  earnings  have  increased  15  per  cent,  and  the  net 
earnings  58  per  cent. 

The  disproportion  between  the  increase  of  gross  earnings 
and  the  increase  of  the  net  earnings  indicates  a  decrease  of 
operating  expenses  and  of  maintenance  charges. 

In  other  words,  the  increased  interest  charges  have  been 
dug  out  of  the  traveling  and  shipping  public  and  out  of  the 
property  itself. 

What  has  become  of  the  $271,291,375  of  increased  cao- 
italization  ? 

Part  of  it  has  gone  for  extensions,  purchased  properties, 
and  track  elevations.  What  has  been  done  with  the  rest  ? 

You  can  obtain  a  basis  for  a  guess  by  returning  to  the 
stories  of  the  Vanderbilts,  Mr.  Hill  and  the  Southern 
Pacific.  Also  contemplating  the  fact  that  in  these  six  years 
the  fixed  charges  increased  $12,130,711,  while  the  net  earn- 
ings increased  only  $7,051,576. 

In  1903  the  net  income  from  operation  exceeded  the  fixed 
charges  for  interest,  rentals,  and  taxes  by  about  $3,500,000. 
In  1909  the  fixed  charges  for  interest,  rentals,  and  taxes 


332  STORIES   OF   THE   GREAT   RAILROADS 

exceeded  the  net  income  from  operation  by  about  $1,500,000. 

In  other  words,  the  dividends  must  have  been  paid  in 
part  from  some  other  source  than  operating  profits. 

What  other  source? 

Such  is  the  railroad  business  as  at  present  conducted  in 
America  by  high  financiers. 

But  do  not  attack  it,  for  by  so  doing  you  impair  the 
stability  of  our  securities  abroad,  and  judging  from  the 
protest  of  the  financiers,  that  must  be  a  terrible  thing  in- 
deed. 

Do  not  attack  it.  Quietly  go  down  into  your  pockets  and 
dig  up  the  increased  passenger  rates,  increased  prices  for 
commutation  tickets,  increased  freight  rates,  increased  cost 
of  living. 

Because  that  is  your  duty  as  patient,  obedient,  well- 
trained  American  citizens. 

But  some  time,  looking  over  a  story  like  this,  you  might 
care  to  ask  of  yourselves  two  little  questions : 

Who  are  the  real  rulers  of  America  ? 

How  long  can  we  continue  this  process  of  piling  up  capi- 
talization and  increasing  the  cost  of  living? 


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